Basic idle
You are correct:
The basic setting is 500 rpm by the air passing the throttle valve plate. The plate is never fully shut but always slightly open when the engine is idling.
The additional 300 - 400 rpm is caused by air that is bypassing the throttle valve through the IAC.
So without IAC working the engine will not stall but continue running at 500 rpm. A dirty throttle housing will reduce the basic idle speed. Although it will be compensated by the IAC, its response time will cause the engine to sometimes (almost) stall.
Under normal circumstances it should not be necessary to adjust the basic idling speed, just cleaning the the throttle body housing should be enough.
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