Yes, to "sit" someone is to join a table they are at in order to play them.
Also, "CAPNL" is cap no limit.
When Doug says "you sat me at 500/1k cap", he simply means Ben joined a table he was at in order to play him. The nosebleed players often spend a lot of time sitting at empty HS tables waiting for someone to play that at the stakes they want.
I disagree with @mfcrocker that this is about an unspoken agreement for HS regs not to play each other or that it's about some petty wasting of blinds. People sit at tables waiting for other players because they believe they are good enough to beat anyone at that stake level. Similarly, Ben says "I sit him at CAPNL because I'm a pro poker player and I think I can beat him" i.e. that he joined Doug's table in order to play him.
The issue here actually goes back to when Doug coached Ben over about four sessions sharing all the work he'd done on working out the best way to approach HUNL. The understanding was Ben would pay Doug back with his training based upon his work on PLO. However, for various reasons, Ben never gave Doug the coaching in return.
The reason Doug is upset about this is because he shared his best strategies and ideas for NL with Ben. He finds it unfair that Ben would ignore him for nine months then try to win money off him with the strategies he only knew thanks to Doug's training. He explains it in a bit more detail in this part of his response video to the 2+2 thread.