Establishing Order

Don't know, but I've seen two females get very nasty, this could just be the beginning.IMO

But, I just don't understand why Riley doesn't just go and find something else to do.  Chew a bone.  Play with a toy.  It seems as if she just wants to irritate Reese.
 
I guess I'm thinking as a human.  If someone bit me....I'd leave them alone pretty quickly!

Do the dogs have their own "special place" ie: a crate?  Sometimes separation is a very good thing.  The older dog might just want some time alone.  Give it to her.  Take the younger dog for a walk.  Take the older dog for a walk.  Seperately.  They get their alone time with you, and a time out from each other.

The younger one is crated all day (as she's just about housetrained).  The older one is loose in the house and has the choice to spend the day in the same room as the pup or go elsewhere.
 
And, they play nice 99% of the time.  Although, there is a lot of what I would consider rough-housing.  But, there have been no injuries (or even any "yipes") until the bite the other day -- which was one tooth mark that, I'm hoping, was accidental.  But, still...for it to be getting rough enough that a tooth breaks the skin, causing it to bleed...I have issues with that. 
 
As for keeping them separate...I've tried taking them for walks separately and my husband states that the dog left behind does nothing but sit by the door and cry until we come back.  Not to mention that, if I try to leave one dog inside and one dog outside, they want to be where the other one is. 
 
I just didn't know if there was a certain amount of leniency I should allow them to figure things out...or, if allowing them to rough-house in the first place was a huge mistake.

Let the one cry at the door while you're out walking.  They'll have to get used to being somewhat seperate at times.  (What happens if one of them needs to be hospitalized...)  The dog on the walk is getting quality time with Mom! When you get back take the other for a walk as well.  Or give the one left behind a high value chewie or treat.  Yes they are a pack, but to maintain a semblance of such, you, the alpha, needs to spend one-on-one time with each of them separately.

I have two female dogs.  A Boxer/shepard, Tia who is 3 and a ACD mix, Lucy who is 1 1/2.  Lucy will "bother" Tia just by wiggling around her.  She cleans her All The Time and Tia gets irritated by her.  We can tell because Tia will growl at Lucy and show her teeth.  Tia then settles in and lets Lucy clean her.  That is all that Usually happens.  There have been a couple of times where Tia actually nipped her in the face.  Once we had blood and I panicked when I saw it!  It has only happened when Lucy will not back off when Tia tells her to.
 
We generally try and distract Lucy when Tia starts to growl at her because Lou is bound and determined to clean her or whatever it is she wants!  Otherwise, we leave them be.  Tia is the older one and the alpha of the two so we try and let her handle it herself.  I'm not sure if this is the correct thing to do, but it seems to work.
 
As far as walks go, I take mine on separate walks a lot and in fact I take them out separately to play ball.  They each need their own mom time.  The other dog will sit and cry/bark (well, Lucy won't if I'm playing ball with Tia as long as she can see me) and Tia won't let Lucy get the ball if they are out together.  Sisters - go figure!

How much exercise is Riley getting? It sounds like maybe she's just a little more high strung and taking out her energy on the other dog. Labs, especially puppies, can have a huge need for exercise. Getting her some more exercise may be enough to solve your problem.

I have 2 female labs as well, and they've had serious aggression issues and have had to be managed separately much of the time.  What you're describing isn't anything like what we experienced though and I could be wrong, but I think it was probably a warning that went a bit too far.  I'd have been upset too, but unless you continue to see this or it escalates, I'd try not to worry about it.  I found this in an article by Suzanne Clothier recently and thought it was interesting and it may be what is going on with your two.
 
"When teaching self control, dogs are careful to make the lessons appropriate for the puppy's age.  Before the puppy reaches 16-18 weeks of age, normal dogs are amazingly tolerant of puppy behavior.  The careful observer will note a slow, subtle increase in what older dogs begin expecting from the puppy, but the overall impression is that a puppy can get away with almost anything.  And the truth is, he can, thanks to the invisible (at least to humans!) but very real "puppy permit."  What the puppy doesn't yet know is this:  there's an expiration date on that puppy permit.  When it expires, the rules can change quite quickly.  Behavior that was acceptable one day may be completely unacceptable the next.  With my own dogs, I've seen a puppy's permit expire over the course of a single morning.  Just before breakfast, a four month old puppy galloped over one of my older dogs - nothing more than a dirty look and a grunt was what she got for this behavior.  Later that day, the puppy did the same thing and was shocked when the adult dog leaped up fiercely snarling and barking in displeasure.  After a few repetitions over the next few days, the puppy learned to politely walk around - not over! -  other dogs.
The expiration date is usually at 16-20 weeks of age, and corresponds with hormonal shifts in the puppy's body.  Once the hormonal shift occurs, the puppy will find much less tolerance from the dogs around him, and increasingly, he will be expected to act in a more mature fashion.  Smart puppy owners keep an eye on the calendar too, allowing puppies to be puppies under some broad but consistent guidelines.  Very slowly - almost imperceptibly, you begin to ask for a little more self control, a little more respect, a little more responsibility from the puppy but never losing sight of the fact that the puppy permit is still in force.  Once the permit has expired, the wise handler can act just like a wise dog, and begin to push a little harder and expect more from the puppy."

That's great advice from each of you.  Thanks!  It all makes good sense.
 
I definitely have to give each of them their own alone time with Mom.  I just have a hard time looking into their sad eyes and leaving one behind while I take the other to play.  But, I guess a time comes when I have to be strict (with myself as much as with them) for everyone's own sanity.
 
Although there was one comment about giving Riley more exercise to tire her out.  And, the ironic part of that is that, because she tries to keep up with Reese outside (as they frequently play tag), we can't seem to keep weight ON her.  And, of course, come bedtime, she's the first to pass out and not move until morning. 
 
And, that wording in the article by Suzanne Clouthier reallly makes sense with regards to the "puppy permit".  It's maybe why I'm really noticing a difference now compared with before.  Reese had soooooooooooo much patience with Riley and was soooooo gentle with her!  Many times we'd look outside and Reese would be the one on the ground on her back letting Riley bounce all over her.  But, not anymore!  Reese is quick to put Riley in her place and, if Riley pushes the matter, Reese definitely lets her know. 
 
I'm hoping that the toothmark last week was just Riley seeing how far she could push...and that she's learned her lesson.  I know she wouldn't go near Reese (and hung out by me instead) for most of the next morning.  But, then, by afternoon, Reese was cleaning Riley and licking where she'd bitten her.  An apology, perhaps?  So, hopefully things will go back to normal with Riley realizing it's time to grow up and behave a bit better.
 
Thanks again to all of you!

i have 5 pits in my home at this moment one in virginia one at my brothers and i have a friend with 3 of his own, when they first get here its just one big ball of fur rolling around my backyard, ya theres a lot of rough-housing and ya theres a few scratches and marks on them at the end of the day, rough housing is intentional but leaving marks isnt, they dont mean to break skin but more so to startle someone whos irritating them or just simply to toss each other around a bit and pounce on one another. but YOU have to decide when u think its no longer harmless, because there will always be rough housing and little snarls when you have more than one dog thats just their way of doing things, they cant speak so they let out a little bellow and they dont have posable thumbs so they use teeth.

they dont have posable thumbs so they use teeth.

 
Um, I believe that's "opposable" thumbs. 
 
At any rate, one of the best things you can do is to take a class with each dog - separately.  That way, you are pretty much forced to keep up with training, which reasserts your position as the top dog.
Females that are close in age sometimes do present a problem when one matures and begins to assert rank over the other.  The more they view you as a leader, the less likely this is to occur.

sry typo, big deal you know what i mean
i myself have not enough time in the day to take each dog to a seperate class because there are just too many dogs lol
alone time is good though, you dont HAVE to take classes but it is suggested to talk to someone you can actually see and can actually watch the dogs behavior to help you correct this type of problem, because correcting at he wrong moment can create a bigger problem

You've gotten lots of good advice here, I just want to add one thing about dogs *accidentally* breaking skin...  they don't.   Unless it is a very young pup, who has not yet learned bite inhibition, skin breaking is NOT an accident.   It is a very controlled escalated response, hopefully preceeded by a proper warning.  There is also a distinct difference between a bleeding nick and an actual puncture wound in terms of the message delivered.  I would be concerned about that.  How bad was the bite?  Puncture, or just a nick?  Presumably she warned Riley and Riley did not heed the warning and simply went too far?  The fact that Reese was *very* patient, beyond the average puppy license, actually would make me even MORE concerned about the bite.  Riley is old enough to be releasing female hormones now.   You may have a challenge for position going on here, which amongst bitches can be quite dangerous...  I would watch their interaction very carefully for awhile.  If in fact Riley is vying for position and they cannot sort it out (peacefully and relatively quickly) - you may need to step in...