Passenger 1 forgot his seat number. He takes a random seat.
There is a 1/n chance that he will take his proper seat (seat 1), there is a 1/n chance that he will take the last passenger's seat (seat n), and there is a (n-2)/n chance that he'll take someone elses seat (Seat j).
If he takes seat 1, then everyone will find their seats open when they get there, so passenger n will get his own seat.
If he takes seat n, then passenger n will find his seat occupied.
If he takes seat j, passengers 2 through j-1 get their proper seats. Passenger j's seat is occupied, so he has an 1/(n-j+1) chance that he will take seat 1, there is a 1/(n-j+1) chance that he will take seat n, and there is a (n-j-1)/(n-j+1) chance that he'll take someone elses seat (seat k).
If he takes seat 1, then everyone will find their seats open when they get there, so passenger n will get his own seat.
If he takes seat n, then passenger n will find his seat occupied.
If he takes seat k, passengers j+1 through k-1 get their proper seats. Passenger k's seat is occupied, so he has an 1/(n-k+1) chance that he will take seat 1, there is a 1/(n-k+1) chance that he will take seat n, and there is a (n-k-1)/(n-k+1) chance that he'll take someone elses seat (seat k).
If this reasoning is followed inductively, we see that at any point the odds of someone taking seat 1 or seat n (the triggers that end the loop one way or the other) are always equal.
Assuming no one takes them, the loop then will go on until someone (passenger i) takes the seat of passenger n-1.
Then passengers i+1 through n-1 get their proper seats, and n-1 finds his seat taken. However, the only seats available for him now are seats 1 and n, giving him a 50-50 cahnce to take either one.
If he takes seat 1, then passenger n will seat in his seat.
If he takes seat n, then passenger n will not seat in his proper seat.
As you can see, the odds of the loop ending one way or the other are 50%, because at any point, the odds of exiting the loop one way or the other are equal, and there is a chance to continue the loop as if nothing happened, until you reach the end of the line, where the odds are 50-50.