As soon as you confirm the parameters the BTS will be locked up as collateral and your account will be credit with 500 freshly minted bitUSD from the blockchain. If the BTS price falls to the point your position is under collateralized, 548 BTS/USD in your case, your short will get called.
Also, and someone can correct me if I misstate, if you are the least collateralized position and someone forces a settlement (the Settle button) for their bitUSD you will be forced to sell at the settlement price.