A 529 is a tax-advantaged savings account. The dollars are intended for education expenses, and typically can't be rolled over to an IRA. Someone in your family can use the dollars for any education expense, such as you or your spouse taking a part-time night class, or you can use the funds for another child by changing the beneficiary.
Yes...if the Coverdell's IRA money is not used for education expenses, it must be distributed. Or you can roll it over to a family member for them to use for qualified education expenses.