Do users in the LTI consumer also need to be registered users in the LTI provider?
No, I don't think so. As I understand things, if you enable LTI as an authentication plugin on your Moodle site and 'Publish as LTI tool' as an enrolment method in your course, then when a remote user accesses the LTI tool, an account will be created for them and they will be automatically enrolled in the course.
However, I have never set things up with a LTI consumer site other than Moodle, so my understanding is limited!