I need to build a 7'x7' 6 inch thick concrete slab for a spa/hot tub. The grade from an existing slab to the outside edge (7 feet) of the proposed slab drops 19.5 inches. I assume I need to build a retaining wall. Is my assumption correct? If so, can I use 6"x6"x8' landscape timbers? also, are there any other considerations I should be aware of?

The answer to that depends on the soil conditions, but most likely you will need some sort of retaining system.. 

My first choice would be to build the slab with "thickened edges" that serve as footings.  On the sloped side you would make these edges go deeper into a trench in the soil all the way down to "solid base."  If you make the "footings" 8" wide by 7' long by 30" deep (guesstimate) you may need an extra 1/2 yard of concrete, but will end up with a much stronger and stable system.  It would be better to use at least 2 rebars at the top and bottom of the footings (length wise) and additional rebars to tie the slab to the footings directly.  The slab itself will also benefit from rebars in both directions placed about half depth of the concrete.   Common spacing is 1 foot on-center.  If you extend those bars into the footings you will have a very strong and stable system.

A spa can be significant load on the base and may require recommendations from an engineer who is familiar with your soil conditions.

I am assuming you are planning to add fill material in order to create a level base for the concrete.  Make sure this fill is very well compacted and stable before placing any concrete on it.  Otherwise it could deform under the load of a full spa and cause the concrete to crack.