First you want to convert 2 1/2 into an easier to manage fraction. So multiply the two in front of the 1/2 by the denominator 2 belonging to the 1/2. You'll get four because 2 x 2 = 4. Add that 4 to the numerator 1 belonging to the 1/2 and you'll get 5. So your new fraction is 5/2 instead of 2 1/2.
So then you'll have 5/2 x 500/1. Multiplying the numerators of each, you'll get 2500, because 5 x 500 is 2500. Multiplying their denominators, you'll get 2, because 2 x 1 is 2. So 5/2 x 500 = 2500/2.
If I had five hundred dollars in each of my pockets I'd have a total of one thousand dollars in my pockets; If I had half of five hundred dollars in my shoe I'd have two hundred and fifty dollars in my shoe. I'd have 500 + 500 + 250 or to put it another way 2 1/2 times 500 dollars for a total of 1250 dollars.