I've always been under the impression is that if you multiclass out of the rogue class into a class that doesn't progress sneak attack, you need to take the Craven feat if you want it to be at all relevant. But now I'm debating whether or not this is true. Does a multiclass character need Craven for sneak attack to be effective or no? By that I mean does a character need their sneak attack damage to be particularly high for it to be effective? And If not then how would such a character stealth take down someone? Should such a situation arise?
Craven is a great damage boost to a sneak attacker, especially one that is behind a single-classed rogue in sneak attack damage dice. A single-classed rogue expects approximately 1¾ damage/level from sneak attack. Craven boosts that to 2¾, which is +60% damage, and it scales on character level, so the boost is easily double or more for a multiclassed rogue (in the extreme case, 1d6 sneak attack damage, the boost is nearly 6×).
Certainly, 1d6 damage is not significant at 20th level (or indeed, at many levels prior to that point), while 1d6+20 damage is (or at least is more so, as long as you’re making enough attacks). But context is crucial here: how much damage are you doing otherwise? How many attacks are you making?
If you were a charger without pounce, but with Shock Trooper, Spirited Charge, a lance, et al., you could easily have a single attack dealing upwards of +100 damage at 20th level. Is another +20 on top of that, that also requires you to awkwardly ensure your charge target is eligible for sneak attack, going to make a big difference? No, it is not.
On the other hand, if your build is a hodgepodge of things that gets fifteen attacks, adding +20 to each of them is a big deal, especially since you probably haven’t otherwise scored a lot of damage bonuses in your devotion to simply having more attacks.
Generally speaking, sneak attack is an awkward and difficult form of damage-dealing. Setting it up is difficult and capitalizing on it is arguably more so. That takes a lot of investment, and Craven alone isn’t going to save things if you aren’t in a position to make the most of sneak attack to begin with. And even with that investment, you won’t keep up with dedicated two-handed weapon damage dealers.
Finally, this all assuming we are talking solely about damage. Rogues, particularly multiclass ones, may not care about damage in combat. They may be social characters, mostly ignoring combat, or they may focus on battlefield control or debuffs, or what have you. For such rogues, sneak attack is an incidental feature that doesn’t matter much (and should maybe be replaced with feats).
The last thing to consider is that, in addition to the difficulties that sneak attack itself has, Craven adds a massive drawback—you lose the feat if you are immune to fear. Which also means you lose the feat if you are immune to mind-affecting. And since these immunities are extremely valuable, almost critical, at mid-to-high levels, giving up on them is a really big deal. That alone is a really good reason to question the need to take Craven.
But in the end, if you have your heart set on dealing damage specifically via sneak attack, Craven is too large a damage booster to ignore.
Many mundane warriors will probably want Craven
The benefit of the feat Craven says, "You take a −2 penalty on saving throws against fear effects. However, when making a sneak attack, you deal an extra 1 point of damage per character level" (Champions of Ruin 17). Further, the Craven feat's prerequisites are light, necessitating only sneak attack—not specifying a minimum number of dice!—and lacking an immunity to fear.
So in exchange for not gaining immunity to fear effects (the feat's benefit is lost if the creature consumes a heroes' feast (PH 240), for instance), the creature, when it would deal sneak attack damage, also deals an extra 1 point of weapon damage per character level (plus, because this is not extra damage dice, such damage is multiplied on critical hits).1 This is an incredible boon, making the feat Craven at character level 2 or higher, for example, better—if more tactically difficult to use—than the feat Weapon Specialization (PH 102), despite that feat being needlessly trapped behind 4 levels of fighter. (That the feat Weapon Specialization is itself a bad feat is a topic for another question. (Hint: It is bad!)) The Craven feat's prerequisites even make it a somewhat competitive and drawback-free low-Strength alternative to the feat Power Attack (PH 98) (for 1-handed weapon users, anyway), and nothing stops a creature that takes each feat from simultaneously benefiting from both!
However, as per KRyan's fine answer, a mundane warrior may not need nor even want the feat Craven if the warrior, for example, is already dealing enough damage or has other priorities or would see his build's momentum wrecked by taking even 1 level of a class that grants sneak attack. (Most typical casters, on the other hand, will usually find other feats more useful, but even a caster may find the feat Craven useful if, for example, taking levels in a prestige class like arcane trickster (DMG 177-8), spellwarp sniper (Complete Scoundrel 64-7), or unseen seer (Complete Mage 81-4).)
Also, an adventurer's vulnerability to fear effects can mean the adventurer's death. (Ernir's awesome (if just a little outdated) post "Lists of Necessary Magic Items" on the Giant in the Playground forums puts Fear Immunity at #5 of 13, for example.) In addition to fleeing the encounter, an adventurer that's panicked (and, if using instead of the DMG on Fear (294) the Rules Compendium on Fear (53), maybe cowering) drops what he's holding, and, at the very least, at high levels, such items can be very expensive to replace!
In short, yes, a high-level creature that possesses only 1d6 or so dice of sneak attack damage and that's not also making a dozen vicious and crippling attacks each turn and that wants having Sneak Attack +1d6 or whatever written on his character sheet to matter will find that the feat Craven accomplishes the goal of making it worthwhile to continue to try to get in position to deal sneak attack damage. However, whether the opportunity cost of the feat Craven is low, fair, or simply too high will depend mightily on the campaign.
This player has always imagined stealth takedowns as the product of the creature having successfully used against a foe the extraordinary ability death attack, the signature ability of the prestige class assassin, but available via several prestige classes, even including evil-is-not-mandatory prestige classes.
However, with some GM adjudication, it may be easier than that. The Rules Compendium on Helpless Defenders says that a creature that is "paralyzed, [magically] held, bound, sleeping, [or] unconscious" is a helpless defender but adds that a helpless defender also includes any creature "otherwise completely at your mercy" (62). A DM may rule that when a creature's adjacent to a foe and the creature remains completely undetected by the foe and the foe has zero reasons to suspect any threats that such a foe is helpless. In such a case, the creature can take a full-round action to coup de grace the hard-working-yet-tragically-unaware 2-sp-a-day guard.3 (Exercise discretion in attempts to persuade the DM into accepting this point of view; pervasive use of this rule may eventually backfire, rendering PCs equally vulnerable.4)
But, barring the ability death attack and a perhaps too liberal reading of the Helpless Defenders rules, a creature's ability to down silently from surprise a foe with a standard action is the province of unique magic items, special abilities, and powers, spells, soulmelds, utterances, and the like.5
Outside the standard rules, stealth takedowns are sometimes supported
For instance, the feat Strike the Innocent (the licensed-by-Wizards-of-the-Coast and well-reviewed-although-I-found-it-wanting Villain Design Handbook 62) allows a creature to take a full-round action to make a coup de grace against any foe—helpless or not—that possesses a base attack bonus of exactly +0. The feat Lockdown (the Wizards-of-the-Coast-approved yet fan-created Planescape Campaign Setting Chapter 4: Skills and Feats 53) allows a creature that's grappling a foe to make an opposed grapple check to either damage the foe or pin the foe. Success means that, instead of the damage or the pin, the foe's bound; a bound creature is helpless. Other, easier and elegant silent takedown methods undoubtedly exist in the countless multitude of third-party d20 System products.
1 The Rules Compendium says, "Sometimes damage is multiplied, such as on a critical hit. Roll the damage dice and add all modifiers multiple times. Total the results. Extra damage dice over and above a weapon’s normal damage… are never multiplied" (17; emphasis mine). Thus, like the bonus on damage rolls that gained from the special ability favored enemy, the damage dealt due to the feat Craven is added and multiplied on a critical hit.
2 War Story: In one of my campaigns a PC took 19 levels in a homebrew class that granted sneak attack also found that the class at that level had a special ability like the spell mind blank except that the PC could at will take a free action to activate or deactivate the effect. The PC took the feat Craven, and the player had to declare It's off when the PC made his attacks and It's on when the PC finished… and the player would occasionally forget to do one, the other, or both. That is, even with an ability as powerful and seemingly convenient as this, the feat Craven intruded on the player's playspace and sometimes left the PC vulnerable when he ought not to've been.
3 Even so, this isn't easy. Without, for example, the feat Death Blow (Complete Adventurer 106) or a similar effect, the typical creature must, during the surprise round, start a full-round action—the coup de grace—and finish that full-round action on his initiative count during the first regular round of combat! Alternatively, the creature during the surprise round does nothing, remains undetected, and (ahem) executes the coup de grace during his first regular whole turn. Either way, a gamble.
4 For comparison, in Crafty Games's d20 System RPG Spycraft 2.0, when an agent finds himself in "appalling peril" it's a Terminal Situation:
Outside combat only, the [GM] may declare that any situation from which a character cannot logically escape is a Terminal Situation. Commonly, the victim must be helpless… for a Terminal Situation to apply. Until the situation abates, any of the victim’s opponents with line of sight to him may spend 1 action die to cause him to either fall unconscious or die…, as appropriate to the circumstances at hand. (Spycraft Roleplaying Game, Version 2.0 350)
Typically, in that game, the GM has from 6 to 10 action dice per session, but these are usually used to keep alive NPCs rather than to straight-up murder feckless PCs. More often, the PC has an opportunity to spend 1 of his 3 to 6 or so action dice per session to have an NPC that's in appalling peril just shut up and die already. It's not nearly as crazy (nor as adversarial!) as it sounds, and, although I've not tried it in D&D 3.5e, using for a similar purpose, for example, action points instead of Spycraft's action dice seems a reasonable house rule.
5 A creature that can take a full-round action or more has it far easier, though, usually by (mundanely) dealing the foe large amounts of ability damage, often via poison but alternatives exist. For example, the feat Hamstring Attack (Dragon #313 30) allows, in certain circumstance, dealing 1d4 points of Dexterity damage per attack with a natural weapon, and the you're-never-going-to-take-it-because-it's-terrible feat Illithid Extraction (Complete Psionic 61) with vast effort under laboratory conditions allows dealing 2d4 points of Intelligence damage. A special shout-out to the feat Savvy Rogue (Complete Scoundrel 80-1) which allows the rogue special ability crippling strike (PH 51) to deal Strength damage even to foes immune to sneak attack damage (but, sadly, still not to foes immune to ability damage).
I've always been under the impression is that if you multiclass out of the rogue class into a class that doesn't progress sneak attack, you need to take the Craven feat if you want it to be at all relevant. But now I'm debating whether or not this is true. Does a multiclass character need Craven for sneak attack to be effective or no?
Of course it's not true. Sure, craven would give +1/level to sneak attack damage and that's nice. Hell, it's nice even for straight rogues - but for any character it's not great. I'd only take it if I did not have something else I was working towards, or if I was focusing on a character that was emphasizing sneak attacks. Depending on your playstyle, the group/DM you're with, and the campaign you're either using sneak attack a couple times a gaming session, or you're attacking with it more often than you're not. That would weigh heavily on whether or not craven is useful compared to other feats.
If you're stuck on craven being necessary then you're probably also focused on being able to disappear into the shadows, doing obscene damage while avoiding attention, and/or making sure you're always flanking the enemy. If that's the case, why multi-class at all? Rogues are the best at that. Maybe grab some sorcerer levels to augment your ability to remain unseen (or just get True Strike), but honestly, why do anything else? That said, if you're doing that, craven is a GREAT feat anyway because it's going to add +[insertyourlevelhere] damage once per round, which is hard to beat.
But if you're multi-classing into something more combat oriented, like a ranger, your full round attack will soon be doing enough damage that there are better things to spend your feats on than +somedamage to the first attack sometimes. If you're going to focus on being a magic user, sneak attack won't come in too handy unless you build your spell list around rays, etc.
TL;DR: Whether or not to take craven is personal and based on playstyle, but rogues are always awesome at multi-class because they get evasion.