Depends on the professor and the situation. Most students who legitimately have no clue just admit they don't know or pass. Many of my professors would just move on from there to another student, but sometimes they'd come back to that student later with another question. I did have a professor who would keep grilling a student and attempt to help him along until he could answer something. But that's not the norm in my experience. Almost all of my professors said that if you hadn't done the reading for that day and were unprepared, to hand them a note before class to let them know and they wouldn't call on you that day. But they'd only let that fly one or two times.
Honestly, I think most professors continue to do it because it requires students to be prepared for class and to remain focused in class for fear of the cold call. That being said, I've had a lot of professors move to other systems, even in 1L year. A few of my professors used a 'panel' system where 5-10 kids would be called upon to field questions. So in this way it forces participation but still gives you a bit of a heads up. I've not been in a single class in my 2L year where the professor cold calls.
As far as my opinion on the Socratic method (as opposed to cold-calling), I'm not sure what the latest research says wrt empirical in-class benefits, but in my experience it does keep students engaged.
I go to a T14. It's mostly casual student dress. Some people dress up for class but they're not the norm.
I think this is really school-dependent. If you go to a school where jobs are harder to come by (and so it's imperative to be top 10%), you'll see more of this cut-throat nature. Don't get me wrong, all law schools will have a "competitive" atmosphere, it's just the degree that will differ.
People are pretty lax about smoking pot, but that's really all I've encountered. There are probably people who pop adderall or other stimulants, same as in undergrad.
You 100% need to do whatever you can to keep your scholarship! You want to graduate with the least amount of debt possible. What are the requirements and does your school stack sections? If the latter is true I would reconsider attending, to be honest.