But the problem is , How can I debug the program by setting break-points, Do I need to use any debugger like STK500 to debug?
The STK500 is a programmer not a debugger.
You need a MKII, AVR Dragon or JTAG ICE in order to be able to debug using the DebugWire protocol.
Don't forget to setup the OCD
bit in the fuses, though I guess Atmel Studio should do it for you.