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Divorce is the formal ending of a marriage.  There is no legal requirement for separated parties to divorce.  However if you intend to remarry you will need to obtain a divorce in order to do so.

In NSW if you divorce then any provision in your Will in favour of your spouse will be automatically deleted (unless you provide otherwise). However there is no automatic deletion like this just because you separate or even if you have completed a property settlement.

If you are separated then you would almost certainly need to make a new Will. Your Will may say that your spouse is to receive your estate on your death and this may no longer be what you want.

Broadly in Australia there is only one ground of divorce being irreconcilable differences.  This ground is evidenced by the parties to the marriage being separated for a period of at least 12 months. This means that you cannot apply for a divorce in until you have been separated from your spouse for 12 months.