Do we really need Thermal Paste?

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You need thermical paste to keep your computer cool inside. Without it, temperature may be higher and a high temperature may cause hardware problems

Without thermal paste between the cpu and the heatsink the cpu will overheat and shut down.

The two surfaces are not smooth enough to get good heat transfer without the paste.

Yes and you'll need a few other things too (cleaning liquid, spudger, cloth).

Here's a guide

http://www.ifixit.com/Guide/Applying+Thermal+Paste/744/1