Challenge rating
...shows the average level of a party of adventurers for which one creature would make an encounter of moderate difficulty.
This makes challenge rating a better instrument to measure how monsters stack up against a party of adventurers than how monsters stack up against each other.
A more precise instrument to measure how a monster-on-monster battle may run is effective character level (ECL). The Draconomicon lists the lowest-Hit-Dice young red dragon as ECL 19 and the lowest-Hit-Dice young copper dragon as ECL 15. Using these figures (instead of the creatures' challenge ratings or Hit Dice or whatever) makes the aforementioned young copper dragon's encounter with the young red dragon very difficult (DMG 49), which, as you've noted, it is.1
But even this slightly more precise instrument is still a club not a scalpel. Determining which monster wins in an unseen monster-on-monster fight should be the DM's call and used to further the plot, making excuses for the lower-powered monsters when necessary to enhance verisimilitude (e.g. "Yeah, the copper rolled nothing but critical hits and the red failed every saving throw--it was amazing; it's too bad you missed it").
"But what are these creatures' actual CRs?"
Dragons' CRs are far too low if all their strengths are played to--each is, at least, a sorcerer engine in a dragon chassis, after all, and sorcerers are already among the game's most powerful classes--, but dragons are much closer to their printed CR if played like big, meaty melee monsters with the default feats from the Monster Manual (e.g. no Rapidstrike et al., no Shock Trooper, no Travel Devotion). It's the DM's task to make sure that the dragon and the environment in which the dragon's confronted are appropriate to his PCs' abilities instead of either slaughtering the party or allowing a legendary beast be unceremoniously assassinated (unless that's the goal).
A customized-by-the-DM wily young copper dragon that efficiently uses all of its resources can, certainly, defeat a straight-from-the-Monster-Manual young red dragon that's down on its luck, hungry, caught unawares, and used to biting everything to death... but either of those could be an EL 7 encounter. It's part of the DM's job to evaluate each monster to determine its suitability. Encounter design, unfortunately or not, is more art than science.
- That these ECLs are likely excessive is another issue entirely.
Because of their recharge and shape.
The Draconic Bloodline breath weapon is more powerful (70 average damage vs 54) because it can only be used 3 times per day and affects a smaller area. The Form of the Dragon breath weapon can be used every 1d4 rounds, and affects a 50' cone or 100' line, versus the bloodline breath weapon's 30' cone or 60' line.
Note that as far as I can tell nothing stops you from using your Draconic Bloodline breath weapon while you're in Form of the Dragon; it's not that your breath weapon suddenly does less damage, it's that you gain another breath weapon with lower damage but a much faster recharge and larger area.
From the PFRD (emphasis mine):
Form of the Dragon I
You become a medium chromatic or metallic dragon. You gain... a breath weapon. Your breath weapon and resistance depend on the type of dragon. You can only use the breath weapon once per casting of this spell. All breath weapons deal 6d8 points of damage and allow a Reflex save for half damage. In addition, some of the dragon types grant additional abilities, as noted below.
"All breath weapons", in all 3 versions of the spell, means "any breath weapon you got from this spell, regardless of which kind of dragon you chose", rather than "all abilities you have that happen to be called a breath weapon".
Best Answer
I don't have a rules citation for your second question, but I've always seen it played that you reroll the recharge die after every breath.
As to your first question -- from the dragon listing:
If a dragon rolls all ones, we can replace this with:
so I think the answer is: if you roll a 1 on the 1d4, the dragon can use its breath weapon next round.