> Does this mean you need Source 2 to develop with S&box?

Maybe I'm wrong, but S&box is essentially a game developed with Source 2, thats purpose is to expose internal APIs and wrap them for users to build their own games with. So you develop your thing in S&box that happens to be made with Source 2, but you don't care about that. Basically Roblox.

Seems this generates some sort of shim that calls source 2 dynamic lib.

Ah ok so this is more of a S&box SDK. I misinterpreted this announcement and thought they were basically just releasing S&box for people to fork.

It is S&box, not just an SDK. The only thing is Source 2 is not open source so you only get binaries for it.