Ok, well where to start (there's a lot to say).
You don't "need" modifications, that's for sure. But I would highly recommend you to get at least one, namely the Unofficial Oblivion Patch, which fixes literally thousands of bugs (no exaggeration there), from merely misplaced items, missing textures and buggy meshes to quest-breaking bugs, and more. That patch should almost be taken under Bethesda control and made official, really, I myself consider it necessary for Oblivion to function optimally. By the way there's one such unofficial patch as well for the expansion pack, namely Shivering Isles, just in case you also have it. Also, if you do get the UOP then make sure you installed all official patches first, and then at the end you can install the UOP (and don't forget to activate its .ESP file when you launch the game via the launcher).
Then you obviously have the content-adding/others modifications. And out of those I recommend the well known Oscuro's Oblivion Overhaul. But there's so much to talk about when it comes to mods and Oblivion. I would prefer telling you that if you want more information regarding modifications you should visit the official Bethesda forums under the Oblivion Mods section and start there. You can also of course Google for "Oblivion Mods" and you'll find plenty from there as well.
As for the game itself without any extra mods, I think it's "alright", it's certainly enjoyable, but it lacks in a few areas, it'd take me three pages to make a proper review of the game, and there's already well enough of them out there on the web from "professional" reviewers and players alike, I suggest you read them if you want, but then again, you got the game so... just play it, do a couple of quests, try not to rush on the main quest from the start or you will end up completing the whole thing under two or three days of play (under pure vanilla condition or not, it doesn't matter, the main quest isn't that long).
Also to play it at the best settings and to properly understand what settings do what and how much impact they have on performance I suggest reading the tweaks guide for it over at TweakGuides.com, it'll help you best configure it, better than just playing around the in-game settings. And, finally, what do you mean by "what is this DLC"?, which of the official DLC's are you referring to? Because there's more than one from Bethesda. And in case you're asking what is a DLC, it's simple really, basically it's just a modification made by Bethesda to add content to the game, just like any other mods made by the community, the difference being it's "official".