My 2.5-year-old toddler has started saying words (more like noises) that me and my wife can sometimes understand, but they barley sound like the intended words. At what point should we start to get concerned? What can we do to help him develop proper pronunciation?
From the article, the speech of a 2.5 year old should typically be some 50-70% intelligible to strangers.
As for when intervention (by a speech-language therapist) is indicated, from the same article, the cited figure is when less than two thirds of utterances by a four year old should be intelligible.
I'm no SLT myself, but to me, this stresses how great the variation is within normal speech development. Obviously, norm data is culturally biased. As has been pointed out in comments, if you are bilingual, there are other normal ranges.
An SLT will be able to tell whether your child's speech development is within our outside of the normal range, and (if warranted) help you with concrete techniques for practicing problematic speech sounds. From what I gather, they will look for whether your child is progressing along an expected trajectory of speech development, rather than meeting specific age criteria, or whether he is showing phonological processes that are not expected during any point in normal speech acquisition.
In general terms, for encouraging speech in normal developing children, obviously engage with your child in communication. Two-way communication with the child is much more rewarding than just being immersed in a language-rich environment. If you're using a stroller facing away from you, you may want to consider turning it so that your child faces you when you're walking, to facilitate communication.
Lead by example. Provide your child with the correct pronunciation without pointing out that he has made something wrong, which may cause him to think that language is too hard or unrewarding. If your child says "Look. Big", you don't say "No no no, it's pig not big.", you say "Oh yes, I see the pig too".