To install paneling directly over studs. You will not be happy with the wall with how flimsy it will feel, plus it won't meet fire code.
You need to install 1/2 inch drywall over the studs first and then install the paneling. The drywall seams should be filled with joint compound, but dont have to be perfect since you will be paneling over it anyway. As to the seams in the paneling showing, this is usually not a problem, but if you wanted to play it safe, you could paint the drywall the approximate same color as the paneling where the seams are going to be.