It is like Social Security # we have in the US, but for Foreigners. I doubt you need one in order to live in Spain. But, you need one if you intend to do any major financial transaction there like buying/selling cars, properties, etc. This way, the Spanish government can track it.

As a foreigner you have to have the NIE. Even when I wanted to get gasoline for my heating of the house the first time, I had to give them my ID. You can go with the help of the agency to the police in Spain. The police can then give you your NIE. I dont remember at all what documents you need to get this ID. I k now an agency in altea but no other ones. Times are bad in Spain and you have to be careful. (more)