Sometimes my 88 chevy 1500 won't start unless I hit the starter with a hammer. What is the problem here?

the starter solenoid is knackered so it doesn't always engage and hence you need to jolt it free an overhaul kit shouldn't be to much and to recon a starter motor normaly costs about 25 pounds

Agree. You need a new starter.

I just bought this starter less than a week ago. It is a rebuilt. Do I perhaps need a spacer?

If it starts ok sometimes and then other times you have to tap it with a hammer, I would try another starter. Does it have a warranty? Also double check all battery connections. Make sure they are clean and tight. Also the negative connections on the frame and motor. Also make sure the starter connections are clean and tight. But typically when you have to tap on a starter for it to work the brushes or something is faulty with the starter.