Hi straightline,
PilotAware uses barometric pressure based altitude to compare Mode C/S and ADSB, so that it shows the same altitude as received by ATC - and GPS derived altitude for P3i so that all PAW units register the same P3i altitude.
SkyDemon uses its own anti-collision algorithms to generate the banner alerts from data supplied to it by PilotAware and will only display the banner alerts if the other aircraft is likely to collide with you. As the aircraft was 500 ft below you, this was not likely hence no banner alert. Forthcoming versions of PilotAware and SkyDemon will also produce aircraft type specific icons and also vertical arrows to indicate if the target is climbing or descending (initially for known position targets only) which will help decide whether the danger is constant, increasing or decreasing and will also indicate whether you might need to climb or descend to maintain effective separation.
Regards
Peter
PilotAware Development