Is defragmentation needed?
On one hand, having files intact on a disk is always better than fragmented and scattered files. However, keeping them this way requires regular use of defragmentation routines that can degrade performance if run continuously, and can also increase the chance of error as files are moved around the hard drive. Therefore, on the other hand it may not be worth either the time or any potential risk to regularly run defragmentation.
Apple’s philosophy for hard drive optimization and defragmentation is explained in this knowledgebase article and is basically that they do not recommend it unless it is absolutely needed (I tend to agree).
To combat the majority of file fragmentation, OS X already has robust built-in anti-fragmentation technologies that prevent fragmentation of files on creation and use; however, they are only applied to files that are under 20MB in size. Because of this, defragmentation will provide the most benefit to those who regularly manage a large number of files that are over 20MB in size, but it will also help for those who have nearly full drives that are regularly used (e.g. Time Machine volumes).