Do I need Content-Type: application/octet-stream for file download?

No.

The content-type should be whatever it is known to be, if you know it. application/octet-stream is defined as "arbitrary binary data" in RFC 2046, and there's a definite overlap here of it being appropriate for entities whose sole intended purpose is to be saved to disk, and from that point on be outside of anything "webby". Or to look at it from another direction; the only thing one can safely do with application/octet-stream is to save it to file and hope someone else knows what it's for.

You can combine the use of Content-Disposition with other content-types, such as image/png or even text/html to indicate you want saving rather than display. It used to be the case that some browsers would ignore it in the case of text/html but I think this was some long time ago at this point (and I'm going to bed soon so I'm not going to start testing a whole bunch of browsers right now; maybe later).

RFC 2616 also mentions the possibility of extension tokens, and these days most browsers recognise inline to mean you do want the entity displayed if possible (that is, if it's a type the browser knows how to display, otherwise it's got no choice in the matter). This is of course the default behaviour anyway, but it means that you can include the filename part of the header, which browsers will use (perhaps with some adjustment so file-extensions match local system norms for the content-type in question, perhaps not) as the suggestion if the user tries to save.

Hence:

Content-Type: application/octet-stream
Content-Disposition: attachment; filename="picture.png"

Means "I don't know what the hell this is. Please save it as a file, preferably named picture.png".

Content-Type: image/png
Content-Disposition: attachment; filename="picture.png"

Means "This is a PNG image. Please save it as a file, preferably named picture.png".

Content-Type: image/png
Content-Disposition: inline; filename="picture.png"

Means "This is a PNG image. Please display it unless you don't know how to display PNG images. Otherwise, or if the user chooses to save it, we recommend the name picture.png for the file you save it as".

Of those browsers that recognise inline some would always use it, while others would use it if the user had selected "save link as" but not if they'd selected "save" while viewing (or at least IE used to be like that, it may have changed some years ago).