Hi,
See screenshot:

If you already have jpg or png images in your folders Subsonic ought to have picked them up in your folder scans.
I haven't had any issues with images even when they were a much bigger than 500 x 500 pixels. I even have had some folders with pictures as large as 1200 x 1200 pixels which appeared in Subsonic without a problem.
The filename of the image isn't really important, but you could go to
Settings >> General >> Cover art files: and change the line to fanart.jpg fanart.png.
But I don't think it makes a difference. Subsonic just picks up the first image it finds in a folder. So if you have multiple images in the same folder like back.jpg, cover.jpg, front.jpg and inlay.jpg Subsonic will use back.jpg as coverart since "b" comes before "c", "f" and "i".