I have been told that I should be playing on a 3.5 reed, but when I try to go from a 3 to a 3.5 its hard to play. How should I know when to change reeds? Or should I just stick with the 3.5? Will it get easier as i keep practicing with the 3.5?

Yes, higher strength reeds are "harder" to play. The stronger the reed, the more strength you'll need in your lips. Continue practicing on the thicker reed and you'll build up the lip strength you need.

You can also build lip strength by holding a pencil between your lips. Squeeze the pencil and use your lips to hold it straight out. Hold it still for a few minutes and release. Then again. Do this until you're lips are good and tired! It's great to do while posting comments on clarinet forums!

Just a side note:
A lot of clarinetists look at reed strength as a guide for playing ability - that people who play on a 5 are better than people who play on a 3. But really, reed strength is as individual as they way you play. It's all about what you sound best playing on. I wouldn't worry so much about trying to play on a harder reed. Keep practicing and focus on style and technique. The reed strength you need will change as your playing style changes.

I use a 5 when playing classical, but a 3.5 when playing jazz and even a 2.5 when I'm playing around with Dixieland. Like I said, it's all about what sounds best with the music you're playing.

if your mouthpiece has a fairly wide tip opening, it will be difficult to play on a stiffer reed. (I'm pretty sure, but let me know if i've got it backwards)

Newer reeds often soften up a bit as you play on them as well, so it will probably get easier in that respect as well. My technique is to use the stiffer reed practicing at home, but use the softer reed durring band class and such when i need to be able to play for the full 90 minute block, untill it doesn't tire me out anymore to play on the stiffer reed. This really helps me because I sometimes have trouble with brand new reeds, especially since I got my braces. I also have a reed that's a half size down from my normal that I use when my lips are starting to go but I have a long time left I need to play.

If you are worse on a 3.5, then don't switch. It's true that your lips will gain strength while playing a harder reed, but you can also develop some very bad habits in embouchure in order to compensate for the harder reed. Often these bad habits go unnoticed until its too late.

Mouthpiece makes a big difference, too. Have a professional check out your equipment and listen to you play. They should have some good suggestions for your individual situation.