What are "500 Mile Upgrades"?

AAdavntage has a section on their site explaining what the 500 Mile Upgrade is:

500-mile upgrades allow you to upgrade from Economy Class to the next class of service for travel on American Airlines or American Eagle:

• Within and between the U.S., Canada, Mexico, the Caribbean, The Bahamas and Bermuda
• Between the U.S. and Central America

What your account must be showing are the '500 Miles' you have earned:

AAdvantage Platinum and AAdvantage Gold members earn four 500-mile electronic upgrades for every 10,000 qualifying base miles flown (including guaranteed minimum miles) during your membership year (March 1 or the date you qualify for elite status, through the last day of February).

From FlyerGuide.com:

An e500 (also known as a “500 miler”) is an upgrade certificate that allows a one-cabin upgrade on a flight of 500 miles or less within Region 1. They can be combined to upgrade longer flights (details below). Mileage Plus elite members who are Premier or above earn 4 e500s for every 10,000 miles flown on revenue tickets on flights operated by United or United Express (also referred to as "BIS" or "butt-in-seat" miles). e500s may also be purchased.

The page goes on to explain how to earn them, purchase them, use them, and calculate the requirements for them based on mileage.

These 500-mile upgrades can be used to upgrade from coach to first class (or business class on a three-class flight) on all paid (not award) flights which American Airlines considers "domestic" (meaning within North or Central America, including Canada and Mexico). Each flight to be upgraded requires one 500-mile upgrade per 500 flight miles or fraction, so a 1200-mile flight would require three 500-mile upgrades.

If you have Gold or Platinum frequent-flyer status in the American Airlines AAdvantage program, you earn four 500-mile upgrades for every 10,000 qualifying miles flown. You can purchase additional 500-mile upgrades. You can request an upgrade using 500-mile upgrades as soon as the flight is reserved (even before you purchase it), or at any subsequent time.

The time at which you request the upgrade matters, because upgrades are processed first in order of status (Executive Platinum members, then Platinum, then Gold) and then in order of request time. Each status level has an "upgrade window" which determines the earliest that AA will consider processing the upgrade.

These upgrades are distinct from an upgrade mileage award, which allows you to request an upgrade using AAdvantage award miles plus in many cases a co-pay, or systemwide upgrade certificates given to certain members.