So what's good about it? Mostly, it rides on the strengths of the e-ink screen. The battery life is simply ridiculous - I only have to charge it every few weeks, or every few days if I'm reading non-stop. In terms of books, the battery lasted long enough to get through Anathem (nearly 1000 pages) on a single charge. E-ink only uses energy when it updates the screen, so it's perfect for this kind of device. For people that say that an iPhone is all the ebook reader they'll ever need: yeah, let's see your iPhone last this long.
Physically, it's comparable in size to a really thin paperback - it's a bit larger, thinner, and heavier. It'll even fit in your pocket, if you have big pockets. It comes with a fairly sturdy cover, which is pretty nice - as long as you don't manage to snap it in half or something, it's almost as sturdy as a real book. There are multiple buttons you can use to flip pages, which is convenient if you want to hold it in different ways. It connects to a computer using a normal mini-usb plug.
The contrast on the screen could be higher, but it's still perfectly readable in most lighting. Bright light definitely helps, though - imagine a book printed on medium gray paper. That's about how reading the screen feels. You can adjust the font size, but I usually keep it on the smallest setting so I can see more text at a time. You can't change the font that it uses, which would be nice, but isn't really essential. The screen has 170 DPI, which I sometimes wish was higher, because the edges of the letters look jagged if you look really closely. It's not bad enough to be distracting when you're reading, though. Overall, the reading experience is pretty good - it's much easier on the eyes than an LCD screen.
It has about 100MB of usable storage built in, which is enough for several dozen ebooks - I haven't even come close to using up the space yet, since I usually delete books from it when I finish reading them. It also comes with an SD card slot, though, so if you wanted to you could put thousands of books on it at a time, and swap out SD cards for even more space. Basically, for all intents and purposes, you can treat it as having unlimited storage.
One thing I wish it had is a way to jump to a specific page. It's usually pretty good about remembering your page, but if you lose it somehow it's a huge pain to get back to it. It'd also be nice if you could do more from the interface: you can't delete books, for instance. For that, you have to use Sony's provided software, which is a gripe in its own right, because it is kind of shittastic. It took me forever to figure out how to even copy a book onto the device.
This is largely mitigated, though, because there's an pretty good open source replacement for it, called Calibre. Not only does it actually work (on Windows, Mac, and Linux, no less), it handles conversions between different ebook formats pretty smoothly. The only thing you might conceivably need Sony's software for is firmware updates, and since I'm pretty sure they've stopped supporting the PRS-500, that's not a huge concern anymore. >_>
One more thing: Sony is launching a bookstore based on EPUB, but for some inexplicable reason, they've decided that the PRS-500 isn't important enough to update with EPUB support. I applaud their zeal in trying to retroactively screw over this device, but since EPUB DRM has already been broken, I'm not anticipating too much trouble converting to an older format.
Edit: Wow, I should complain about stuff more often! I just saw via mobileread that Sony will offer a free upgrade to PRS-500 owners. XD