All the LR metadata is stored in the LR database, but there are a couple of reasons you may also want to auto-write the XMP data:
- As an extra backup of (some of) the photo's metadata
- To allow other software (e.g. Bridge) to read LR's metadata
There are probably more reasons, but I think these are the main ones.
It doesn't really matter whether or not you're using DNG or your camera's raw files - in the first case, the XMP data is written into the DNG file itself, in the second case into the sidecar file. So you can use the same approach you do for raw files.