The offer they gave you, is what they believe your vehicles value. In other words, if not for this accident, then the $2500 is what you could have sold your vehicle for. You might see your vehicle being on sale for $3,000, but they look at (what) the car sold for, not what someone asked for.
Now if I had to guess, the $800 is the salvage value of your vehicle. This is what a salvage yard will pay the insurance company for the (parts) they can sell from your vehicle.
So, you take $2,500 minus $800 which is $1,700. So if you decide to keep it, then insurance pays you $1,700.
Unless you are a mechanic or do body work, it is unlikely you can fix for $500. Depending in the state where you live, then in some, to drive it, or re-title it as salvage, you may have to pass an inspection.
retired auto adjuster