I think Bernard Woolley (Sir Humphrey's underling) summed up "need to know" accurately...
Bernard: The fact that you needed to know was not known at the time that the now known need to know was known, and therefore those that needed to advise and inform the Home Secretary perhaps felt that the information that he needed as to whether to inform the highest authority of the known information was not yet known, and therefore there was no authority for the authority to be informed because the need to know was not, at that time, known or needed