This is the section in httpd.conf that deals with users web directories.
# UserDir is disabled by default since it can confirm the presence
# of a username on the system (depending on home directory
# To enable requests to /~user/ to serve the user's public_html
# directory, use this directive instead of "UserDir disable":
As you can see the default directory for users personal web space is public_html. From your post I can not understand if you can not get the users web directories to work at all or if you can when you add a file to there directories. I'm pretty sure you must add a file to the public_html directory in order for it to work. If you try to access www.domain.com/~user1
and there are no files in the directory then it will return and error because you have not specified a file to view. Apache thinks you a just trying to browse the directory.
As for hosting multiple sites on one ip you should look into the Virtual Hosts section of your httpd.conf file. I'm not too familiar with how to set it up but I know this is where you start.