I've been to many different places over the years for Restaurant Week (RW)! It's one of the great treats of living in NYC.
The short answers to your questions are (a) if you want to eat at the better restaurants, then yes, you'll need to make reservations, particularly for dinner and (b) not all restaurants participate, but many do. I've included a link below to those who participated in Winter 2010, as well as a link to the official site.
The think to keep in mind is that restaurants vary widely in terms of what they offer on their RW menus. In some cases, you get only two or three choices, and none of them are top dishes or signature creations. In other cases, you get to pick from the best the kitchen has to offer. It's not always obvious which is which, though, so it pays to do a little research by looking at menus and reading reviews in order to get the best values and to avoid disappointment. Some places really make an effort to put their best foot forward with their RW dishes, while others seem to dial it in and not care too much.
To sum up what RW is all about, participating restaurants offer a specially-priced three-course lunches for $24.07 and three-course dinners for $35.00 You don't need a special reservation, and you're free to order off the usual menus, but the prices can be substantially higher, of course, depending on where you go.
Hope this helps.