1 - creating the CF isn't too bad. The only problem that I had is that on a Windows machine, you can't format the CF card to be "free space" - you have to use either linux or mac to do it. Just make sure you format the card as free space and not as a filesystem like FAT or anything, otherwise it won't work for the Amiga.
2 - Yes, you can just swap the card out and run the new one! BUT! Make sure the computer is turned off first!!!
In a nutshell:
Get WinUAE
Get classicwb full - this is what I use with "stock" rtg graphics, 3.0 rom, 040, and it runs really well.
Start up winuae and make all the settings very similar to your computer but put a lot of z3 ram, this will speed up the installation process for you.
Make sure you add a "hardfile" and make that file the System.hdf file you just downloaded for classicwb.
You MUST have 3.0 or 3.1 install disks or adf images! You can get them from amigaforever.
Now, when you launch the winuae you just set up, it'll ask for your install disk...just use f12 to use one of the adf's. It's pretty self explanatory. It will all install and you'll have a fully working classicwb 3.0 or 3.1 setup!
Now, the interesting part. Shut down winuae, then get it all ready to go again, but with your cf card attached in your computer. Then add another drive. Make sure it's the cf card and it's set to read/write!
Now boot, and you'll have to format the drive. Do 500mb DH0: and make it bootable!, the rest as DH1:. Reboot and do the same settings for the drives (system.hdf followed by the cf card). This time you'll see the drives on your wb screen, format the DH0: one to be system and DH1: to be work, storage, whatever. Then load up Dopus and on the left side get DH0, on the right get DH0_0 (this is what it calls your cf card at this point). Now do select all in the left window and hit copy.
Now when you put your cf card in your amiga it will boot (hopefully!) into your new classicwb

Hope this helps.