Do solar panels always need direct sunlight?

Panels produce the maximum amount of energy when sunlight strikes them at a 90° angle. This is why positioning and angle are so important for a solar installation. In the northern hemisphere solar panels should face south for maximum energy production. The inclination of panels can be equal to your latitude. In the USA, an angle between 30° and 45° generally works fine.

However, panels don't necessarily need direct sunlight to work. Even when there are heavy clouds in the sky, modules still produce energy: panels make use of more than just visible sunlight. The Sun gives off radiation of different wavelengths, some of which can't be perceived by the human eye. This invisible radiation penetrates the clouds to go straight to PV modules. As long as it is daylight, solar panels continue to produce energy. So, if you can't install solar panels under direct sunlight, they will still work, just at a lower capacity.

If there is something between the sun and your panels, that's another story. Solar panels in shade produce much less energy, because solar cells in a panel are interconnected. If the performance of one cell goes down, the ability to produce electricity of the whole module suffers. The performance of a panel may fall by more than 75%. Constant shading also shortens the lifespan of modules, because some cells have to work more than others and eventually burn out. Manufacturers addressed the problem of shading by implementing bypass diodes into PV modules. They split panels into several sectors, normally 3 or 4. If a cell in one sector is shaded, diodes don't let it influence the other sectors. For example, Panasonic HIT 330W with 4 bypass diodes will lose only 25% of its power output if one cell gets shaded. A solar panel with 3 diodes would lose a third of its production.

A shaded panel can become a problem if modules are connected in series and a string inverter is used. Bad performance of one panel drags down the power output of others. To avoid it, you can use microinverters instead, or combine a string inverter with power optimizers for every panel in the string.