Do I need to become a resident and how do I apply for residency?

Yes and No. Yes if you intend to stay in Spain over the given legally permitted period of three months (90 days). In this case, you will need to be present yourself in person at your local police station and submit an application and documentation to support it. 
If you do to stay in Spain then no you do not need to apply. However you will still have to renew you NIE number and have an active NIF code. 
If you do apply for residency it does have benefits, such as linking in with your NIE and giving longer periods between renewals. 

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