The installation of tile backsplash is never required by code, but it is a wise choice when tiling behind a bathroom or kitchen sink. It is a very practical measure used to reduce the likelihood that water from the sink will splash up onto the drywall and eventually seep into it and lead to rotting. By its very definition, tile backsplash is meant to prevent water damage. When tiling a counter around a sink is the most obvious instance when tile backsplash is necessary, although you can tile the wall up to ceiling if you wish even when there is no sink.
The primary function of tile backsplash is to prevent water from inundating the drywall directly behind a sink. With every use of the sink, water splashes around and behind the sink in both the kitchen and the bathroom. Counters that are tiled benefit from a backsplash because it in part protects the drywall from water damage. Tile backsplash is typically 4 inches above the surface of the counter, but there is no steadfast rule as to how high it should be.
It is a good idea to install tile backsplash whenever you are tiling around a kitchen or bathroom sink, but if it does not fit with the decor, it is not required. It will, however, offer some protection to the wall behind the sink from water damage.