In display properties, in the settings tab, you should see a grey box with a numbered blue box representing each of your monitors. These are drag-n-drop, arrange them within the grey box however your physical monitors are arranged. If you can't tell which is which, hit the 'identify' button down at the bottom of the window.
AFAIK, separate wallpapers requires reethax of one form or another. Personally I've always gone the ghetto route and spliced them together in the image manipulation program of my choice. I think there may be some third party software to accomplish this as well. Point is, it is not an inherent windows function.