No, you don't need it turned on all of the time. Think its only really used when you are running "adb" (Android Debug Bridge) program (client) from your PC to your phone. Turning on USB Debugging on your phone allows the adbd (adb daemon) process to communicate with the adb client on your PC. Root apps might need it for making superuser (SU) requests.
If you are done rooting your phone and using the adb commands from your PC, you can leave it turned off. You can still "see" (mount) your phone as a disk drive to your PC without having USB debugging enabled.
edit: there probably are other programs other than adb (like fastboot) that also need this enabled. Waiting for the big guns (you know who you are ) to chime-in for the final word.
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