When I connect one (or 2) headphones to the dongle, how do I know which codec is being used? There is no toggle on it.

You will need to look into which codecs your headphones support. The dongle supports the following codecs: 1.FastStream, 2.aptX low latency, 3.aptX, 4.SBC. These are ordered by priority.

Let's take the Sennheiser MOMENTUM 3 for example, it supports the SBC, aptX LL, aptX, and AAC codecs. When connected to the dongle, we go down the line of the dongle's codecs. 1.FastStream is skipped because it's not supported by the Sennheiser headphones. Next, 2.aptX low latency is supported by both so it's used.

Let's say you pair a second pair of headphones to the dongle, the AirPods Max, which only supports AAC and SBC. The dongle will now prioritize a codec that's shared between all 3 devices: SBC. The SBC codec is now used for both headphones.