Why SS pin must be set to OUTPUT for SPI master?
AVR SPI module can be used as a slave or master, and even in multimaster configurations where each node can be slave or master. If the SPI is master, and SS pin is input, the SPI peripheral will drop to slave mode when SS pin falls low. Therefore the SS pin must be output to stay in master mode, and it cannot be used as input. It does not need to be used as chip select for other chips. It can drive just the LED, and another output can be the chip select. SPI hardware does not toggle the SS pin automatically, it does not know which byte is first or last transmitted on SPI bus.