Should that step exist? Are you "allowed" to decline a ladder game? If not, is it possible for people to be auto-joined?

You are not allowed to decline, and yes people will get auto-joined if they don't join.

The main reason this step cannot be removed is for players to pick their color if there's a conflict. It's also nice to have some sort of introduction, where you can see who you're up against and start to mentally prepare for the game instead of just being thrown into a game.

Different thought make that auto-join a little faster than it is now.