Editing /etc/hosts to use domain name instead of ip address

Yes, /etc/hosts associates IP addresses with hostnames

So, there are two things wrong with your line:

• 192.168.1.2:500 is an IP address and a port
• http://www.mydomainname.com is an URI and not a hostname

So, the line should be

192.168.1.2 www.mydomainname.com

You then access via http://www.mydomainname.com:500 from your browser of choice.

Yes.

• 192.168.1.2:500 is not an IP address. It is an IP address plus a port.
• http://www.mydomainname.com is not a domain name. It is a URL, part of which is a domain name.

/etc/hosts maps IP addresses to hostnames, and vice versa. It is not a URL rewriting tool for WWW browsers. With it, one can map the name www.example.com to the IP address 192.168.1.2, and that's it. No ports, schemata, paths or anything else enter into the matter.