Yes, you need to create an ad-hoc assembly. You get beta testers to send you UDIDs for your phones, and then create an Ad-Hoc build for these devices and email it. They install it by dragging it to iTunes and then syncing their phone.
In fact, this may be a little trial at the first creation of the Ad-Hoc assembly. Apple's documentation covers all the facts, but there is no simple step-by-step guide. I highly recommend you check out TestFlight - it is free to use and makes the whole process easier.
(If you feel very adventurous, you can try Anticipation , the simple Ad Hoc distribution tool I wrote that runs on Google App Engine. And is open source, so help yourself!)
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