Yes, over is a preposition here. It means more than a particular number. Cambridge has a very succinct explanation concerning this. They have also provided a few pertinent examples:
Over as a preposition
Over with numbers
Over means 'more than' a particular number or limit.
There were over 100 people at the lecture.
If your hand baggage weighs over 10 kilos, you must check it in.
She couldn't enter the competition. She was over the age limit.
There's nothing wrong with a preposition being in that position; 'over 500' is a prepositional phrase functioning as determiner in the noun phrase 'over 500 people'.