The main reason for the needle's presence inside the poppet is because Mary Warren placed it there. Towards the end of Act II, Mary says that she was knitting the poppet during the day's legal proceedings. She says that Abigail saw her knitting the doll, using the needle to make it. Mary gives the poppet to Elizabeth with the needle in it. The presence of the needle is seen as "evidence" to substantiate how Abigail was under attack that evening at dinner, claiming that she was stabbed with a needle. The discovery of the needle inside the poppet is taken as proof that Elizabeth is practicing witchcraft to get back at Abigail.
Act II is significant for a couple of reasons. It is at this point in the narrative that the rather weak basis for evidence behind the accusations is becoming clear. The situation regarding the needle and the poppet is one such example. Another example would be how Giles Corey tells Proctor that his wife has been arrested because he asked about the books she was reading. Act II is interpreted as the point in the narrative when it is clear that Salem is becoming undone through accusations of witchcraft.
The fragmentation in Salem is matched with the disintegration of the Proctor marriage. Act II is the first time we see John and Elizabeth together. It is clear that both of them are struggling to find a balance of reconciliation. From the opening moment of the Act where Proctor adds spice to the broth, it is clear that the act is reflective of the state of the Proctor marriage. The disjointed nature of Salem society and the Proctor marriage lead to many of the interpretations of Act II in Miller's work.