clearing customs on a multi-leg trip to european destination

Can we check our bags all the way through to Salzburg? Would it be a bad idea to be separated from our bags for that distance?

That depends on your airlines and whether you have this as one through booking (I hope so). If you can do this as one through ticket, then yes.
If this is separate tickets, then you will have to pick up your bags, take them through customs (see below), and check in again. All of which is extra time and risk of missed flights.

where will we be clearing customs (Iceland AND Frankfurt or just Iceland?)

North Americans seem to confuse customs and immigration. They are two very different things.

• Customs is the check on goods. Checking the contents of your luggage to see if it contains any forbidden items or items for which customs duties (taxes) must be paid.
• Immigration (aka passport control) is the check on people. Checking whether you are allowed into the country and if so for how long. This is where your passport is stamped if necessary.

Iceland is where you enter the Schengen Area. You will go through immigration there, and not when you land at Frankfurt or Salzburg. Immigration can take time. I hope 40 minutes is enough.

Will we need our bags with for customs one or more times?

Your bags will go through customs wherever you pick them up. If this is Salzburg, then just there. If it is Frankfurt, then there and not again at Salzburg, as your bags will already have entered the EU.
Customs is the one you need to worry about the least, as most people are not stopped, they just stop and check a small random sample.

Can we check our bags all the way through to Salzburg?

I am unable to find a flight routing that has Icelandair and Air Austria as a bookable option SEA-SZG; therefore I conclude this is 2 separate bookings. You will need to retrieve your bags in Frankfurt and check them in for your Air Austria flight.

3.5 hours in FRA 'should' be enough time, as long as your arriving flight is on time.

A problem could arise if you make the transfer in KEF, but your baggage does not. Icelandair is obliged to get it ( baggage) to FRA. Icelandair may have no obligation to send it anywhere else.

Booking tickets in this manner is just asking for trouble...sorry to rain on your parade, but the likelihood of you having no delay in on your first leg flight, clearing immigration quickly (have you seen the lines lately??), exiting the secure area and then going BACK through checkin and security to get to you new departure gate on time is highly doubtful. You might want to go ahead and prepare your plan B.

Edited:
We’ve flown through Iceland a couple of times and had no problem but I forgot that we were traveling on EU passports. Indeed, the non-EU line looked very, very long. Went through early April. Don’t know if you’ll make your connection. However, if you do and if your second flight arrives on time, you should be okay. You are arriving in Frankfurt on a domestic flight, not international. You just get your suitcase, walk through nothing to declare, check in if you are checking a bag, and go through security.

However, if one of your flights is delayed, your plans will be disrupted down the chain.

Since the question was about the poles and carry on, I’d buy inexpensive poles in Austria for the reasons Joe mentioned. You don’t want delayed luggage on a trip like this.

Did you know that Icelandair participates in Deutsche Bahn Rail&Fly program. When you book you Icelandair tickets ask about this. For a fixed price, you can take any train from Frankfurt Airport train station to Salzburg. It is a 6 hour journey, but considering you have to wait 3 1/2 hours to get a (expensive) flight to Salzburg airport about 1 hour flight, then wait for luggage and a taxi or bus into Salzburg itself, it is not much of a delay.

Also, considering all that, why don't you just buy trekking poles when you get to your destination.

Forty minutes? Good luck. When recently experiencing the isolated airport in Keflavik (code KEF), it’s a madhouse of scrambling masses, all trying to reach connecting flights. The airport surely was not designed for the current situation. I witnessed folks learning they missed their connecting flight and were on their own until the next available flight...at best the next day. Transit to hotels, hotels and food are expensive.

Thank you for these responses, which are sobering, but helpful. I appreciate your taking the time to share your experience/knowledge.