What a person needs to know, is really quite subjective. You may think that they need to know, but that's from your perspective, and depending on how close the situation is to you, will determine how big the blinders are that are clouding your vision.
I can't really be less vague, considering your equation is missing almost every single variable. But here's some food for thought, if you can't explain a situation to strangers on the internet who really could care less and aren't going to judge, then maybe whatever situation you're talking about, you're not entirely ready to deal with. If you can't be direct and honest about it in what is essentially a safe and anonymous place, I don't think it's going to work out to well.
Confront them as soon as possible. They may be hurt for a while, but it shouldn't last forever since it's your sister. If you need, have someone there with you. (If they know the situation, and you can trust them.) Either way, you have to tell her sometime. Good luck, and you got this.
If it is something that someone else has done to them, then it is not for you to take control. If however, it is something that you yourself have done and are ashamed of and sorry for or want to brag about, then yes, go ahead and tell the person so that you can either grow your relationship or destroy it. That's my 51 years of personal experience talking and I still haven't got it right yet. xx
Very often, things people think are their business really aren't.
I had a hard time figuring out what you were talking about, because 'confront' is probably the wrong word here. You'd confront the wrongdoer, not the unknowing victim. Him or her you'd probably just inform. But what makes you believe you're obliged?
Depends on the situation. More details? If you honestly think this is something that the other person needs, you can help them or not. Do you care about that person at all? Are you a coward? Is the sitation any of your business?