I think there is a pretty good description of what it will do in the wiki. You can get there by clicking on the WIKI link in the green toolbar at the top of the forums.
The quick answer is that yes you need a DC power supply to make the MR16 work. The Lynx dongle supplies the DMX information and is plugged into the MR16. The MR16 takes your DC current from a power supply and uses that to fade the outputs as you tell it to in software.
Hope that helps.
Ron