There are several threads on this topic; I suggest looking at the list below or doing search.
To answer your question, most people would look for positions by word of mouth, advertisements and by enrolling in the match (but generally only PGY-1 positions will be offered, so you would have to accept that you may need to repeat your first year, but could tell the program when interviewing that you would be open to any second year positions available). Some specialties have websites with open positions listed, and there are several places like residencymatch and findaresident which list positions as well.
You would be well advised not to wait until the end of the year to look for a PGY-2 position for a couple of reasons:
- most will have already been filled for the upcoming year
- you generally sign your contract for the following in March or April; your current PD would be awfully upset to find out in June that you aren't coming back
As to whether or not he/she has to know, that is program dependent. Some will not interview you or entertain your application unless they know you are supported by your current PD and are in good standing in your program, requiring a letter. Others understand the sensitivity of this information (ie, because of the fear that if it gets out that you want to leave, you will be fired) and will offer you the position without such a letter, but rescind the offer if they find that you are not in good standing or do not come recommended.
So whether or not you tell is up to you, but most PDs would prefer to hae some notice so they can find someone to fill your spot.
BTW, you will need a good reason for switching programs. Some people are loathe to take residents from elsewhere and the grass isn't always greener...