Rp3 installation. Installed yesterday
Why do we need to install both MQTT embedded broker and MQTT Binding to enable a thing working using MQTT?
A MQTT broker is needed for MQTT to work. The broker collects all messages and sends those messages for which a client did subscribe to the client.
The MQTT binding is not a broker, it only presents a broker thing, which is the connetion between the broker and the binding.
The embedded MQTT broker of openHAB is not neccessary, BUT a broker is neccessary. For example, instalations which had a mosquitto MQTT broker running can use this broker instead of the embedded one.
Where do I setup MQTT server IP inside OpenHAB? I have added embedded broker and binding, both using paper UI
The embedded broker is automatically configured for you for an easy start. It has the same IP configuration then openhab, only a different port, the default Mqtt port. Please read about Mqtt first, this is an openhab forum not a Mqtt one 
Thanks David_Graeff. I was able to make a project work without any MQTT IP config seperately. So I guessed the IP is internally configured within openhab. Thanks