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You have to actually join one another's game to play together.
It's not that hard just to set up a basic server for a couple of people.
To make it persistent, the same game no matter if one or both of you are playing it, yes.
If you are only ever going to play at the same time (together), whichever of you has the beefier computer can start a multiplayer game (with a password!), and have the other person join in. When you're on your world list in the menu screen, there's a 'start server' option.
Once whichever one of you is going to start the game has done so, hit the escape key. In the top center is a 'join code'. Give the code and password to your friend, and they can join your "server" without you having to pay for one.
If the host has bad internet it can get a little laggy, and de-synching is occasionally an issue, but de-synching is an issue on purchased servers, too.
Given the givens, I do not recommend the local server if you're going to have more than 2 (MAYBE 3 with a beefy system and great 'net) people. We played with 6 briefly, once upon a time? It was--hilarious and nonproductive and there was a lot of rubberbanding. Flying vikings are FUNNY though, not particularly FUN.
I *will* say, Bisect hosting's Valheim setup is both easy and cheap. If this ancient noob can figure it out, I'm quite sure you can.
Happy gaming!!
eta: if you're hunting for a game to play for something like this, Grounded's cloud saves can be shared amongst players, and hosted by whomever launches the shared save.