  NaFe$_{0.5}$Cu$_{0.5}$As represents a rare exception in the metallic iron
pnictide family, in which a small insulating gap is opened. Based on
first-principles study, we provide a comprehensive theoretical characterization
of this insulating compound. The Fe$^{3+} $spin degree of freedom is quantified
as a quasi-1D $S=\frac{5}{2}$ Heisenberg model. The itinerant As hole state is
downfolded to a $p_{xy}$-orbital hopping model on a square lattice. A unique
orbital-dependent Hund's coupling between the spin and the hole is revealed.
Several important material properties are analyzed, including (a) factors
affecting the small $p-d$ charge-transfer gap; (b) role of the extra interchain
Fe; and (c) the quasi-1D spin excitation in the Fe chains. The experimental
manifestations of these properties are discussed.
