If you've enough time to verify each subdomain in WMT and also removing 400+ domains one by one, then you can go for solution 2. You can't remove subdomain from verified WMT account of main domain, that's why you need to verify each domain.

Adding canonical is a better option, it wouldn't remove all of the demo domains from Google's index rapidly, you have to wait for few months, but you'll be on the safe side.

Just use H1 one time, matt cutts said in a video that he would like to see only 1 H1 tag on a page.

Create content for better user experience, use headings just for your readers, and don't follow these on page tactics very much. Now everyone knows these techniques, and I don't think Google gives higher weight to these things.

Create content for readers

Use H1 as your Page's Heading(Just one time)

Use H2 where you think it's essential

Solution 1:

Add robots.txt on all demo domains and block them, or add noindex in their header.

Solution 2: Verify each domain in webmaster tools and remove it entirely from the link removal section ( I wouldn't recommend this).

Solution 3:

If your both domains like agency1.domain.com and demo.agency1.domain.com have same coding and are clone then you should just add canonical url to the agency1.domain.com and canonical will be http://agency.domain.com/ it will work if it will be automatically shown in the demo domain. if it doesn't show up in the demo domain automatically then add the same canonical to the demo domain.

It will take some time to deindexed from serps, but it will surely work. I've faced the same kind of situation in past.

But What should be the plan for changing the theme? I'm not a dev, nor a designer and only use premium Wordpress themes for my blog.

I've noticed that when I change my blog's template the traffic goes down dramatically, about of 40% decrease. I know that new themes can have some problems but I have tried this with 2 different themes. First try was with genesis framework(Paid one) and just in one day traffic went down and when I reverted the old theme, the traffic became normal.

Should I wait for 1 week to see what happens?

What could be the potential reason of this?

I've heard that Google is now indexing links and stuff available in javascript and jquery. My webmastertools is showing that some links are blocked in robots.txt of jquery.

Sorry I'm not a developer or designer. I want to know is there any impact of this on my SEO? and also how can I unblock it for the robots?

Check this screenshot: http://i.imgur.com/3VDWikC.png

Just use H1 one time, matt cutts said in a video that he would like to see only 1 H1 tag on a page.

Create content for better user experience, use headings just for your readers, and don't follow these on page tactics very much. Now everyone knows these techniques, and I don't think Google gives higher weight to these things.

Create content for readers

Use H1 as your Page's Heading(Just one time)

Use H2 where you think it's essential

If you've enough time to verify each subdomain in WMT and also removing 400+ domains one by one, then you can go for solution 2. You can't remove subdomain from verified WMT account of main domain, that's why you need to verify each domain.

Adding canonical is a better option, it wouldn't remove all of the demo domains from Google's index rapidly, you have to wait for few months, but you'll be on the safe side.