I think for the most part it isn't necessary, although there are some exceptions. For example, my chihuahua Apple has very, very thin fur and gets cold extremely easily. He is small as well (6 lbs) so sometimes a sweater is necessary. In the winter time, he gets so cold going outside to pee that he needs that protection to even walk out the door, much less relax enough to use the bathroom. I don't think that dressing up pets is cruel as long as the pet is comfortable, still active, and does not change behavior when in the clothes. I think at any sign of discomfort, irritation, slightest annoyance, etc, the clothes should be taken off the dog. The feeling of clothes can cause feelings of anxiety and fear in some pets. Apple's companion, Boo Boo is a chihuahua mix and he got very stressed when we first tried to put clothes on him, so he can't wear clothes or even harnesses.
Again, I think it is okay when necessary like in the winter or maybe in cold air conditioning, but I don't want to see some pug running around in 75 degree weather with a t shirt on. Dogs don't care what they look like, they just want to run, play, and not get their arm stuck inside their shirt in the middle of chasing a squirrel.