Does an Indie need a game demo to generate interest and sales?

Demo, demo, demo.

That is, if you aren't a well-known company name and/or your game isn't a well-known brand. Otherwise, in the cluttered games marketplace, it will be difficult to get sufficient downloads or eyeballs trying out your game to leave a mark and get noticed (let alone make any money off the conversions.

If you have a demo out there with a good amount of players who actually tried it out 'cause it was a demo on Steam, on web sites and whatnot, there is a better chance it will get reviewed, getting you even more exposure.

Additionally, if you want to pitch your game to publishers and distribution channels or even funders and investors, they will be asking for a demo anyway.

Demo it is then right? Right. Can't stress it enough.