What is it?

It's a slang phrase which means to Provoke another individual (reffered to as the opponent in the context of this wu) with the use of language to initiate a negative change in temperement i.e. anger. Such that the opponent is tempted to retaliate in a physically abusive manner, or at the very least a verbally deffensive manner.

How is it done?

There are many ways of achieving Fight Talk, the easiest to my knowledge would be to negatively portray with words (be it true or not), the opponents Mother along with the rest of the reasons that makes one want to 'Fight Talk' - This is by far the most fool proof method.
Another way is to dis-repute the opponents beliefs, be it religion, politics or whether one should wash or wipe their arse after excreting. - However, this method can harbour varying results.

Is it necessary?

Many people (myself included) have learned or have been brought up to argue in a way that is better i.e. logical debate with evidence/proof as far as possible, without having to resort to rudeness. So in my personal humble opinion, the answer is 'I don't think so, but it depends on your objectives and your circumstances...'

Why is it done?

I believe this takes place to belittle your opponent, or indeed to initiate a fight where the 'fight talker' doesn't actually want to be the one to throw the 'first punch' so to speak.