Controllers using PID library and Simulink - do I need to convert to volts?

Not real sure what you mean...

Analogread is going to convert the voltage on its pin to a number from 0 to 1023. You need to know what this number means - voltage, degrees, velocity... and how to scale it for the PID routine. Perhaps you can use this raw number, perhaps you will convert it to a number that means more to you when you look at it. Does the PID work with reals or ints? That will have the biggest influence as to what you do with that number. The more range you have to work with the better results you will get from the PID. You then will have to scale the output from the PID to 0-255 for analog write.