Five hundred little folk in digs (6)
I believe the answer is:
delves
'digs' is the definition.
('delve' can be a synonym of 'dig')
'five hundred little folk' is the wordplay.
'five hundred' becomes 'd' ('D' can be a synonym of 'five hundred').
'little folk' becomes 'elves'.
'd'+'elves'='DELVES'
'in' acts as a link.
(Other definitions for delves that I've seen before include "Digs into" , "Rummages deeply (into)" .)