CD Baby was HUGE in the early 2000s, especially for independent bands/musicians. This was before anything like Amazon music, iTunes store, etc. For the most part, digital music was still heavily being pirated at this point in time, at least until the music industry got a better grip of the digital music market.

Of the 2 million songs available at Rhapsody and Napster, over 500,000 were from CD Baby

If that's what it means, it is a bit misleading since it is combining two other services (Rhapsody and Napster) against one (Apple).

I read it as him stating that Rhapsody and Napster each had around 2M songs, and .5M of each were from CD Baby.

That is- they both had, with exceptions, the same 2 million songs. And of those 2 million available, CD Baby provided some 500k of them.