Both a README.txt and a README.md file are included in your theme and plugin. This may seem redundant, but there is a reason for this: both WordPress and GitHub use two different formats of README files.
README.txt
WordPress supports files in plain text, so the README.txt is created to fully support WordPress’s standards. You should use this if you wish to publish your plugin on the WordPress Directory or to access information in the WordPress dashboard.
README.md
GitHub repos support README.md, written in Markdown. This allows you to add formatting and images which can be displayed. This can be used to give more information about the project you are working on.
Do you need two README files?
As long as it is properly formatted, WordPress will support a README.md file. It must not be written in GitHub’s particular flavour of Markdown, and the backtick character that signals a code segment is also not supported. However, as long as it is written in a supported way, you can use the README.md file as your primary README. Because Project Zero is available via GitHub rather than the WordPress repos, both have been included.
What do you need to include?
The standard README.txt file included looks like this
=== Theme Name ===
Contributors: (Should only contain WordPress.org usernames.)
Requires at least: 5.0
Tested up to: 5.2
Requires PHP: 5.6
License: GPLv2 or later
License URI: http://www.gnu.org/licenses/gpl-2.0.html
Short description. No more than 150 chars.
== Description ==
Theme desc.
== Frequently Asked Questions ==
= A question that someone might have =
An answer to that question.
== Changelog ==
= 1.0 =
* Added new option
= 0.5 =
* Security bug addressed
* Changed thumbnail size
== Upgrade Notice ==
= 1.0 =
* Upgrade notices describe the reason a user should upgrade. No more than 300 characters.
= 0.5 =
* This version fixes a security related bug. Upgrade immediately.
== Resources ==
* magnify.jpg © 2014 Jane Doe, CC0
* supermenu.js © 2013-2015 James Today, MITIt contains some similar elements to the header in the style.css file, but also allows you to expand on the headers with a longer description, FAQs, and a Changelog.
Just so you know
The theme contains a full CHANGELOG.md file, but you can use the README instead if you wish. There is nothing to stop you from using either or both.