Was Darwin aware of the difficulties behind the concept of species?
The whole point of Darwin's theory was that transition from one species to another is extremely slow and gradual. There are plenty of quotes in "Origin of Species" stating this, and also affirming that there is no clear boundary between species and subspecies, or "races".

Quotes from Origin of Species > Variation under Nature (Chapter 2)

Quote 1


  Nevertheless, no certain criterion can possibly be given by which variable forms, local forms, sub species and representative species can be recognised


Quote 2


  Several experienced ornithologists consider our British red grouse as only a strongly marked race of a Norwegian species, whereas the greater number rank it as an undoubted species peculiar to Great Britain. A wide distance between the homes of two doubtful forms leads many naturalists to rank them as distinct species; but what distance, it has been well asked, will suffice if that between America and Europe is ample, will that between Europe and the Azores, or Madeira, or the Canaries, or between the several islets of these small archipelagos, be sufficient?


Quote 3

It is here the most definitive quote I managed to find and partially answers to your second question.


  From these remarks it will be seen that I look at the term species as one arbitrarily given, for the sake of convenience, to a set of individuals closely resembling each other, and that it does not essentially differ from the term variety, which is given to less distinct and more fluctuating forms. The term variety, again, in comparison with mere individual differences, is also applied arbitrarily, for convenience sake.