Windows software RAID 1: how to identify which drive failed

You need to replace the drive with the bad block. Each time you try reconstruct the array if will fail once it hits that block.

You should not need to fully reformat though - you should be able to remove the failed drive, replace it, partition it as needed and rebuild the array (unless, of course, the array is RAID0 rather than RAID1, RAID5 or similar).

I've not done any of the above with Windows' software RAID, so someone else will have to help you there if the place to issue the relevant commands are not obvious. To help them help you, it would be a good idea to add your current disk layout in your question.

What if disk 1 fails? Will it automatically swap over to disk 2?

It depends on the computer and how the hard drive failed. If the BIOS on your computer still sees the first drive it will probably attempted to boot to it. Typically with software-based RAIDs you have to reconfigured boot drive after a failure. If you need the computer to be able to survive a disk failure with zero intervention then you really are going to need a good hardware RAID controller.

Should I use some tools for monitoring my RAID 1?

Windows will log RAID events to the Eventlog. There are lots of tools for monitoring the event logs mentioned around the net and on this site.

Finally, I'm looking for a tool to test the speed (read/write) of my harddrives,

I like BST for for quick testing (http://www.nu2.nu/bst/).

Iometer is far more extensive but it does get a bit complicated because of all the available options. (http://www.iometer.org/)