These are the conditions in Baldyville:
1. No two inhabitants have the same number of hairs on their head.
2. No inhabitant has exactly 3 hairs.
3. There are more inhabitants than any inhabitant's hair in the town.
What is the highest possible number of inhabitants?
Let's substitute 3 for 518 so it's easier for you people to count. Note the bold line - stop being so damn picky and take it at face value (the intent of the puzzle) - it means that the number of people in town (p) is greater than the number of hairs on any one person's head (h) (p>h).
So person 1 is bald (p=1, h=0).
Person 2 has one hair (p=2, h=1).
Person 3 has 2 hairs (p=3, h=2).
No one can have 3 hairs, no one ELSE can have 0, 1, or 2 hairs on their head, because they're already taken.
So you have 3 people, no one has more than 2 hairs (meeting condition 3). If person 4 were to have 4 hairs, you would have p=4 AND h=4, which cannot happen (condition 3, 4 is not greater than 4). The same applies to any person after this (5, 6, 7, ...). Once you skip a number, assuming you can't repeat, condition 3 prevents the existence of more people, because the number of hairs will be equal to the number of people.
Therefore if the number skipped is 518 (instead of 3), the maximum number of people is 518.
If you still don't get it, I feel sorry for you.