Is the system reserved partition necessary?

The System Reserved partition is essential if you want to use BitLocker drive encryption, which can’t function otherwise. Important boot files are also stored here by default, although you could store them on the main Windows partition if you preferred.

What is the use of system Reserved partition in Windows 10?

The System Reserved Partition holds the Boot Configuration Database, Boot Manager Code, Windows Recovery Environment and reserves space for the startup files which may be required by BitLocker, in case you use the BitLocker Drive Encryption feature.