So I want to mirror the data on a 500GB storage drive onto a 500GB partition of a 1TB total drive. Question....do I have to format the 500GB storage drive I've been using in order to do this? Will it prompt me to format that parent drive when doing this?
Also, will my partitions in the 1TB remain so that I have 500 gigs of mirrored data and the leftover I can use for random whatever stuff?
You should get another 500 GB drive as it will be easier. I can't tell you about the first hard disk (you didn't mention which RAID controller you have or if you'll use the OS to create the RAID), but you'll probably lose both partitions on the 1 TB hard disk. Depending on the controller or OS, you might be able to set a non-RAID drive with the remainder of the 1 TB drive.
This can be done if you use the ICH10R. Did you already setup your controller in RAID mode? If not, then do it and install Intel Rapid Storage Technology and use it to setup your RAID 1. Select the 500GB drive (you'll have to keep the data since it's your boot drive) and the select the other drive.
Before setting up your RAID, I recommend that you backup your 500 GB hard disk if it contains important data. Even if you use RAID 1, regular backups should still be performed.