Yes, IB is actually quite proactive at MAD with this sort of thing. I agree that walking slowly is a bad idea. If your first flight is delayed, you miss the second one, and there is no other combination that day they will pay for a hotel, yes. The compensation only applies if the delay is IB's fault and even then they are notoriously difficult, so it's best not to factor it...

The one comment I would make this booking if I could afford to arrive in ORD one day later, but I would not make it if I had checked luggage. It's relatively easy for you to make the flight and for your bags not to. This can cause a very long delay, since the bags then would have to go through customs without you, etc. (although if your full itinerary is with IB this makes it easier, I had this problem in a LCG-MAD-CLT-IND itinerary, where I had to wait 24 days for one of my bags).