Guy:
A 500-word maximum challenge would be a REAL challenge for me! A 1000-word maximum would be only slightly less so.
Well, in the days of newsgroups being quite popular on the internet, I was generally a participant in the soc.sexuality.spanking newsgroup's annual Short Story Contest every summer, wherein the entries were limited to 500 (or so) words of actual story text (not including title, author's notes, etc.), which is how almost all of those very short stories of mine came into existence.
There were volunteer reviewers assigned to read and comment on each entry, which there were various categories for (those being determined by whoever had volunteered to be the 'SSC dictator' and run it that summer), and they did end up awarding 'prizes' for the top three places in each category via their (the reviewers') votes. (I was a reviewer for the SSC's final 2-3 years.)
Anyway, my point is that writing to a severe word limit was challenging, because the story's plotline, characterization and descriptive prose had to be restricted quite a bit, while I also had to refrain from employing most of the adjectives and adverbs which I'm fond of using--it was "bare bones" writing, often requiring 2-3 sacrificial 'edits' to get the entry down to a suitable length.
It was ironically bemusing to me when a reviewer's comments included the suggestion that the story's plotline and/or characterization should or could have been "developed further" by the writer, who had only around 500 words to work with. (The last few SSCs did have categories for 1,000 words, and one even for 2,000, but entries to those were limited for each author.)
There was one 500-word LSF Challenge which managed to produce 66 stories, but I'm uncertain whether it would ever be tried here again. Perhaps a 2,000-word-limit Challenge might be interesting at some point...

--C.K.