All outputs made by dbms_output are stored on server side and sent to client just after finishing the job. Thus you cannot see progress of that script, just final report.
For watching progress you could use a log table and insert a row in it instead of putting a line by dbms_output. Then you can watch this log table from another session.

BTW, updating big table in this fashion is very slow. The task you are doing is better and faster done with a single or several UPDATE statements.
I also suppose that iside the loop you are updating all emp rows with that deptno, not just current row. Then you don't do 500000 updates but 500000*rows_of_deptno.
Use WHERE CURRENT OF or ROWID as kris109 proposed.

I'm not sure, but with this approach you can also get a "snapshot too old error".

HTH,
Ales