What is JAVA and why do I need it?
It is a programming language. It can be used by software you install and it can be used by some webpages. If a program or website needs it and you don't have it then the program or website will not function properly.
The truth is, JAVA is a security risk, just as flash player is a security risk, but it is very hard to get around the internet without them. Whenever hackers find an exploit, a newer JAVA version is released to try and thwart the problem.
By default, JAVA looks for updates and notifies you when a newer version is available. I believe this is what you are seeing and it is a good idea to install it because it is likely a security update.