Circuit design question - low pass filter
A 2nd order low-pass butterworth filter as you have shown will have a similar frequency response as shown below in trace 2: -



So, if 500 Hz is re-normalized to coincide with "1" along the x-axis, you will see that at 5000 Hz, the attenuation is 40 dB down and below 500 Hz it's fairly flat all the way to DC (but with some gain dictated by R3 and R4 in your circuit).


  In the specification it says "Signals need to be attenuated by at
  least 80dB relative to difference frequency of 400Hz" but I'm not sure
  what this means?


It certainly doesn't apply to a 2nd order filter as you have drawn in your question. It might mean that at 900 Hz (500 Hz plus 400 Hz) the attenuation needs to be at least 80 dB and, if that is the case then a fifth order butterworth filter would be required.

It could even imply that what you want is a pass band filter with 80 dB (or greater) attenuation 400 Hz either side of the centre at 500 Hz.

But, at the end of the day, it's down to you understanding the full specification you are given so, maybe publish a little bit more of it.