I would say that it won't matter too much what distro you install on this system since the hardware is pretty old. You are going to be doing a minimal installation on the system anyway since it only has a 500mb hdd.
If you really want to try a minimal-by-nature or highly cutomizable distro, you may want to try LFS (Linux From Scratch
http://www.linuxfromscratch.org/) depending on how comfortable you feel with that. I've seen another micro distro called Damn Small Linux
http://www.damnsmalllinux.org/. This is, of course, if you want to save space etc. It may be more headache than it's worth if you are fairly new.
As far as booting from the CDROM, is there an option in the BIOS to let you boot from CD or the PCMCIA in some manner?
If not, you may went to check out
http://www.linux-laptop.net and look up your manufacturer and model to see what others have done.
- Javahead2000