A hotel reservation, or other proof of accommodation is required as part of the Schengen visa process.
The only actual requirement is that the reservation have the following:
- Your name (ideally, it should be the same as the name on your passport).
- Arrival and departure dates.
- Address of the venue/hotel.
Sometimes if you are part of a group, the travel reservation doesn't have all the names of all the passengers and this causes issues at the embassy.
Beyond this - does it have to be confirmed (paid) reservation - it is not specifically mentioned in the requirements.
For example, this pdf for requirements for Schengen from the embassy of the Netherlands lists the following (for tourist visas):
- Application and a photo that is no more than 6 months old.
- Passport has to be valid for 3 months after the validity of the visa.
- Copy of passport (id page)
- Copy of your national id (if applicable)
- Previous passport (if had a Schengen visa)
- Copy of flight reservation and hotel booking for the entire period of stay in the Schengen Area
- Copy of travel insurance, with minimum coverage of 30,000 EUR
- Visa fee of 60 EUR in local currency
- Employment letter
- Valid residence permit endorsed in document (for foreigners)
- Bank statement for the past 6 months