Yes you need the vacuum advance. You may need to reposition the distributor so you have more room to adjust it. One tooth should be enough.
As for the vacuum leak, keep working on the timing, as you advance it more, the vacuum will continue to rise. When you see the vacuum start to reverse and go down, you have advanced to far. Get the timing right, and you may find most of your problems will go away.
For information only, the vacuum advance only works when the carb is open, this is whats called ported vacuum. The air going through the carb creates vacuum pulling the advance in. Manifold vacuum is created from the pistons sucking air into the cylinders and the throttle blade blocking the air flow creating a low pressure in the intake manifold. Don't confuse the two. Manifold vacuum drops as the throttle is opened, ported vacuum rises. Ported vacuum is above the throttle blade, manifold vacuum is below the throttle.
Mechanical advance is a system of weights and springs that advance and retard the timing according to rpm. You should see this working using a timing light and changing rpm. As the engine increases in rpm, the advance also increases.
As mentioned above, a often overlooked place for a vacuum leak is the throttle shaft bushings on the carb base. If you can wiggle the shaft, the base or shaft itself is worn and will need some repairing.
