What is the deal with lease renewal after 1 year?

You're under no obligation to sign a new fixed-term lease. Under Part 4, your landlord can only terminate your tenancy for a few specific reasons, such as if they are selling the property, moving in themselves, or performing substantial renovations that require vacant possession for a long period of time for health and safety reasons.

The advantage to a fixed term lease for you is that, unless the lease itself allows, your landlord wouldn't be able to terminate the tenancy during the lease term even for those reasons. The downside is that you also can't just terminate the tenancy yourself during the fixed term either, though you always do have the option of asking to assign the tenancy to a new tenant you find, and if the landlord refuses you can then terminate early with no penalty.

The letting agent most likely wants you to sign a lease because they charge the landlord an administration fee for "processing" a new lease. They cannot terminate your tenancy just because your current fixed term is over and you decline to sign a new fixed term lease.

If you neglect to advise your landlord (or their agent) that you plan to remain in the property at least a month before your fixed term ends, then they could technically pursue you for any costs they incur as a result of your failure to notify them of your intent to remain, e.g. listing fees they paid to relist the property for rent or nonrefundable fees on cleaning or other services they'd arranged in anticipation of your departure. In practice, that's very unlikely, but just to be safe you should notify them in writing of your intent to remain under Part 4 as soon as possible. Even if you don't notify them in time, that has no effect on your security of tenure under Part 4.