I am new to gas engines and was wondering that what is the purpose of the oval spacer/velocity stack and is it necessary to install it?

there is a insulating block that goes between the engine and carb to keep the transfer of heat from the carb,is this what you are talking about?

I think you are referring to the stack that screws onto the carburetor. If your engine is installed under a cowl, this item will help get air into the carb. I would only use it if it projects out the side of the carb to fresh air. Otherwise make sure you have enough air entering the cowl thru vents, usually your cut out for engine to fit is enough. Sometimes these "RAM-air" stacks can cause the engine to cut out in flight if it is directional (outer edge is cut on a slant). Depending how you have the stack turned, it can cause a vacuum at idle due to your airspeed and stop the diaphragm from getting fuel. I position mine at about "4 o'clock" ( the lower side of the slant down to the right). This forces air into the carb at any throttle setting.

Just some extra info. If you have an in-flight idle problem, try repositioning the stack. Also there is a hole in the carb diaphragm cover. If that hole is in direct line with the wind blast coming through the cowl in flight, you can have the same problem. You will need to solder on a piece of brass tubing a 1/2 inch or so then run fuel line into the dead air of the fuse. This will keep the atmospheric pressure on the diaphragm constant. Try the stack first then the tube if needed. Make sure you remove the cover and check the hole after soldering. I know you would have anyway, just a heads up.