Balance test, in order to get you permit, is done at the motor vehicle compound, basically you just ride around a series of traffic cones, weaving, turning and stopping at various points to show that you can control a bike enough to take it on the streets. Road test is to get the full endorsement, done on the city streets, following normal traffic rules, with a person from DMV driving behind you in a car telling you where to turn, what lane to get in, blah, blah..
Most people I know have done the course, and if I know of anyone who wants to get their motorcycle license, I tell them to do the course, if for no other reason than it enables them to get the full license quicker.
Personally, I don't know anyone who rides their bike without a license, but I'm sure that it does happen. Too risky IMO, have an at fault accident without the license and you're pretty much financially F**ked for the rest of your life!!
As for the course itself, I had never ridden anything two-wheeled before other than a bicycle so I found it incredibly helpful. They provide the bikes so you don't feel bad if you drop it
I had bought a honda CBR 125 about a month before the course, and did nothing with it other than wash it, wax it and sit on it because I did not want to damage it. At the course, you could pick from CBR 125s or 250 Suzuki Marauders, so I picked the 125. Never dropped it at the course and gained a lot of confidence in my ability to handle the bike.