yes the CPU is what will hold the system back, it's a lower end Intel processor, while the graphics card R7 260x is a mid ranged card. Overall it shouldn't be too bad, you'll still be able to get decent performance, everything you'd expect from a 500 dollar computer anyway, and I would recommend upgrading in the future, an Intel Pentium is no lightweight but it doesn't exactly match up to something like an i5 processor
that motherboard allows all Haswell CPUs (so including i3, i5, and i7 4000 series processors) to be used so you can always upgrade later if you decide to go with it.