sequelink server necessary?

I tried to simply configure a JDBC source as you would for the InegrationServer in the TN console and I am getting an error which complains about the database model version.

Is the sequelink server required if using external databases? If so, what are the steps to configure an external database?

Where should the sequelink server be installed if the database is on a separate machine? On the machine with the integration server or on the database machine?

All our boxes are Solaris.