I used to be hooked into a Soundcraft Spirit Studio 32:8:2 but because of space constraints, I had to sell it.
 
Now I'm running a little Mackie unit, basically for hooking up extra gear, keyboards, outboard etc.
 
Because it all runs into 3 patchbays, including my interface, I can route anything, anywhere with just a few patch leads. VERY old school but it works for me.
 
I couldn't work without it.

FastBikerBoy
 
The unit I use is also capable of OTB mixing and although that's not something I've done much of I do quite often run tracks/busses out through the mixer's EQ and record the result back into Sonar. Especially useful on drums.
 
A mixer isn't a necessity by any means but it does offer the luxury of flexibility that's almost impossible, or extremely hard to achieve with other set ups. I'm not sure I could do what I do without it.

I have to agree here. Especially with the flexibility. Depending on the mixer's feature set, it can become and integral part of the workflow. With talk back capability I can easily communicate with the artist via their individual headphone mixes. The kit that I use has midi control and allows control of the faders, pans, solos and transport. This is a huge workflow enhancement for me. This allows to be creative with my workflow. I can work in the box. As mention by Karl I can work OTB also or any combo in between. This allows me to use my external gear easily if warranted or I can go completely in the DAW.
 
As has been stated.... No it is not necessary.. but depending on its capabilities, it can open up a ton of possibilities. Thanks.

Yes to most of the "hook-up" routing features of outboard mixers, but all of those have work-arounds...when it comes to my primary reason it is best described as "headroom" and frankly all the sciency answers that suggest it is a negative sum game simply need to listen...now it does matter what KIND of mixer you use, some do a digital summation that is less than stellar and others do it purely analog less than stellar...that being said, the right kind of mixer with proper signal path manages to place the mix more realistically for our natural hearing than doing everything in the box via math space...it's a subtle difference...kind of like the difference between garden fresh garlic and oregano in your Italian food and shelf packaged...plenty of folks make wonderful meals with the packed spices...no fault there...and some folks using fresh spices make bad meals...but give fresh spices to a really good chef and the meal becomes an experience...

My mixer is on the output side of things, simply for PA-type purposes with quick-and-easy hardware patching. My intent/use is not as an input source, but I have found it convenient to tone-match guitar from external gear by hard panning source vs guitar through the same playback system. It is also convenient for general ad hoc screwing around when adding anything to another source with no intent to record.

I guess I am an exception to the rule, but I use an external mixer for mixdown.

Sonar is primarily a "tape mahine" and editing platform for me.  I do use prochannel for stuff, eq primarily as I like its sound and ease of use better than the one on my board and I use the tape emulator a lot but I tend to do all levels, pan and effects on the board.

I just find it is more musical for me that way, plus, while the mix-engine in Sonar is good, lots of tracks running at once really makes finding the sweet spot a bit difficult for me.  Adjusting with the mouse feel tedious, I like the feel of those 100mm faders that I can manipulate 10 at a time if needed.

Once I have my mix where I want it, I just run the mix off the board and record to a new stereo track in the project and voila, pre-master mix is ready.

To each his own.

I first started with a Behringer 502 A Mixer
 
Before I owned my first true Firewire (Presonus Firepod) Audio Interface, I owned the Alesis 12FX mixer.    I Still have this but I much appreciate the Roland Octa-Capture now. 
 

I used to use a mixer like many described here, but these days I have an RME FireFace UFX that takes care of all that. It is an amazing piece of gear that replaces the need or luxury of a traditional mixer. It really is a hardware mixer controlled by TotalMix software. All routings are possible. Zero latency headphone mixes, mixing some reverb/delay for monitoring without recording it, etc...