First off, the Navigation Tree widget can be found here: Navigation Tree widget.
I believe the association is a (Entity1) 0 -> N (Entity2), as it is made to show multiple objects under each one of Entity1.
If it doesn't give an error when placed outside a dataview, it can be used anywhere. The ListView uses an xpath retrieve to get the objects and as such does not need a context. It can be used anywhere.
I'll update the documentation to more clearly reflect the 0 -> N association for the second entity.
Edit: It seems the widget is not retrieving the sub objects properly, I'll look into this and get back to you when I know more.