Cradle cap is infantile seborrheic dermatitis — an overproduction of sebum (skin oil) that causes yellowish, waxy, or crusty scales on the scalp. It affects up to 70% of infants in the first 3 months of life. It is not caused by poor hygiene, allergies, or infections. It's caused by overactive oil glands, likely stimulated by residual maternal hormones.
It looks alarming. The thick, yellowish, crusty patches can cover large areas of the scalp and look like something that needs medical intervention. But cradle cap is painless, non-itchy (unlike baby eczema, which does itch), and completely harmless. Your baby is unaware of it. The main "patient" in cradle cap is the parent who doesn't like the way it looks.
This is why the decision to treat vs. wait is genuinely a personal preference, not a medical one. Both approaches are valid. Neither is wrong. The only scenario where treatment becomes medically indicated is if the area becomes infected (redness, swelling, oozing) or if it's severe enough that a medicated shampoo is needed.