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How can I tell if I'm in Heading Hold or Normal?
When you are in normal mode the servo arm moves quickly back to center. In Heading Hold mode, it will stay in the same place (or close to it) when you release the rudder stick. It might drift slowly but it won't stop in the middle. When it drifts like this, it means you need to adjust your trim until it quits drifting or reinitialize your gyro.
If you flip the switch that "should" change the mode, but doesn't, unplug the gain connector. Now plug a servo into the same channel the gain connector was in. Flip the switch. The servo should sweep from one end to the other. If it doesn't, you've found the problem. Be aware that some gyros (601/611) can be set up to be in heading hold all the time.
Most computer radios today have a "Function" menu. This allows the same switch to do several things. I suggest reading your radio manual or setting the function to Gear. The gyro works just like a servo. If it's at one end, it's in heading hold with high gain. If it's at the other end, it's in normal (rate) mode with high gain. The gain is then set using the Travel Adjust. The closer you get to the middle, the lower the gain is.
Usually guys get "most" of the radio setup right. I normally only have to change the gain value to make the gyro behave. Going from a value of 50 to a value of -50  on their gyro page is all it usually takes.
I'm going to try to find the time to post specific procedures for different transmitters, but there's enough information here now for you to fix your problem.
Do I even need Normal mode?
Yes, you need to be able to access it once in a while. While adjusting the t/r control rod, you should be in normal mode. When setting up your servo arm, you should be in normal mode. Other than that, it's not really necessary.

I can't change from Normal mode to Heading Hold mode

This is mostly taken from the "Gain" page, but I've added some
useful information.