Thank you so much everyone for your understanding and reassurance.

It makes me sad that she thought I was being racist, that, because she was the same race as the man, and I'm obviously not, that she assumed it was an issue of racism.
She also assumed that my asking him to move his hand meant asking him to move his seat. Not so. She was on about how the man had paid for his seat. Well, for a start, he may well have a free travel pass due to age, but sure as heck, I paid for my seat full price and him having a seat means the seat he's sitting on, I thought?

The man wasn't even harming me, BUT it did feel very uncomfortable and violating, even if it wasn't intended as such.
I don't know how it happened that people don't seem to care about others' personal space any more, but that really is how it seems to be.