How does residual chlorine in tap water work?
Actually, I think that to qualify this statment, you should use about a 3.33% solution of household (5%) bleach for disinfecting. So that's actually, 0.15% sodium hypochlorite solution.

Also, time and pH are factors. A 0.15% bleach solution will kill many bacteria within 5 minutes. But after a few days, a more dilute solution will also have killed many bacteria.

Also, given that household bleach has a pH of around 11, a 1% solution will have a pH of about 9. The optimal pH is about 6, where all of the -OCl is converted to HOCl which is roughly 80x more effective as a germicide. 

So, I realize that 0.5mg/L is still about 3000 times less than 1.5g/L (= 0.15%), and that's the real question. The real answer is that the place where the bleach is added (in a municipal supply) is at the filter, where bacteria collect. Once the old filter has been bleached the fresh water supply is allowed to resume which flushes the bleach along (at tolerable levels). Also, they often use other oxidizing agent which are synergistic with HOCl, so that they can reduce their cost and improve the function.