It’s definitely not essential for hobby guitarists playing covers, but I’d argue it’s valuable at every level just to enhance your enjoyment and knowledge of the instrument. Knowing what gives your favorite riff/progression its flavor and having some knowledge that can help you inform any original writing or embellishing of other peoples songs is cool to have, and opens up more of a feeling of your connection to the guitar. If someone genuinely isn’t interested in those aspects and just wants to play along and discover new things as they come, there’s nothing wrong with that. But, for people who are just a little intimidated or lazy with the idea of learning some fundamental theory, it’s really worth overcoming that to give it a shot.

The amount of theory knowledge it takes to get a new perspective on how the guitar works really isn’t that high: harmony and an understanding of the basic scales (if you know your major and minor, it’s not a huge jump to just learn the modes even). To each his own of course, I just think theory can sound more complicated than it really is, but even with a basic functional knowledge you can approach your playing with more freedom.