The Pokemon who is not Ditto needs to hold the Incense, otherwise you will not get the baby Pokemon.
And it does not disappear when the egg is made. It can be used as many times as you like, as often as you like.
Also, just a little something I learned. :3
Notably, most baby Pokémon which result from Incense breeding have different Egg move lists than their evolved forms. For example, Azurill can learn Fake Tears through breeding while Marill cannot, and Marill can learn Aqua Jet through breeding while Azurill cannot.
I never knew and I thought it was interesting.
So anyways, I hope I helped answer your question. :]