Draw is usually higher odds partly because most people bet on one team to win, which drives the odds in particular directions. In the case you stated, it is likely the case that Team 2 are the better team, but Team 1 have the home advantage when working out the odds. I tend to bet on draws if the result is good for both teams or if the style of play of both team negates each other, so West Ham v Aston Villa I usually bet a draw on.
The important thing to remember is that odds aren't solely decided on how good teams are, they're also driven by the market. So if the first 10 people to bet all bet on Team 1, Team 1's odds will drop and the other odds will rise to try to limit the bookie's risk.