Question

I've been spending a fair amount of time editing a journal this year, and it's pretty amazing what different people think of as a "referee report". The first thing you should keep in mind is that the editors will be incredibly appreciative if you look at the paper in detail and send in comments in a timely manner, whatever the comments are. In my mind a good referee report begins with a very short (a few sentences) summary of the result and the argument. It includes an opinion on whether the result and proof are (i) correct (ii) readable (iii) interesting to lots or only a few people; also (iv) a recommendation on whether it is good enough to appear in the given journal, or alternatively/also comparisons to the quality of one or two other recent papers in the field, or just a statement that the referee isn't sure if it is good enough or not, and (v) a non-empty list of specific corrections/suggestions.
Re (3-4) it's perfectly fine to send in a one-line request that the paper be revised so that it is written in correct English. It's not your job to correct grammatical mistakes if there are more than a few. Re (5-6) if an argument is hard to follow, you can just ask for a revision in which the authors to explain more. As an editor, it's quite easy (with computers and e-mail being what they are) to request a revision, even after the referee has only read part of the paper.