You don't need a streaming server to use the Video on Demand module. But your videos are more secured with using a streaming server, because they will not be saved in the local browser cache.
With the "normal" progressive download the videos are being downloaded by the browser and played simultaneously. It looks like streaming, but isn't real streaming. Like any other website content, the videos are also being saved in the local browser cache and can be saved locally on the hard disc later with little effort. This way users could use them "offline" after the activation period is over.
By using a streaming server, it is not possible to grab the videos from the browser cache, as they are not being saved locally.
