First off, it's not necessary. It helps if you need troubleshooting, but if your system boots and allows you to install the OS, you're good to go. The motherboard speaker is really nothing more that the motherboard connector, two wires, and a tiny speaker attached. The wires have the tensile strength to keep the speaker from touching any other components and causing a short.
Do you need it? Only if you're having issues where troubleshooting the motherboard may help.
Where does it go? There's usually a two pin port somewhere on the board that it plugs into.
It does not hang outside of the case. The speaker wiring is normally no longer than two or three inches.
-Wolf sends