Funds that are rolled into the new plan year don't count towards the maximum for that new plan year. So, you can elect up to the plan maximum ($2,650 per FSA account in 2018) and then have rollover funds added to the available balance. Kind of like a bonus!
Take special note of this: Unlike the grace period, the rollover only applies to healthcare FSAs and doesn't apply to dependent daycare FSAs. Additionally, any funds over $500 will be forfeited if you don't use them before your deadline.
We get it, it sounds like a drag. But this rule isn't there to penalize you; instead, let's look at the rule as motivation to help you budget your health spend each month, so there's no wasted money by the end of the year.
Since you're not required to put the maximum amount into your FSA account each year, you should carefully decide how much to contribute so that you don't lose money, especially if you have low medical expenses and your employer doesn't offer grace period or rollover options.
If you're careful with your budgeting, having the $500 rollover option effectively negates the year-end "use-it-or-lose it" rule. As long as you spend your annual funds down to $500 or less, you can use that money in the next plan year. If planned the right way, that $500 could go a long way toward letting your FSA cover a big ticket item or service. Super high-tech foot circulator anyone?