The sitting on is most likely dominance, yes. Though I wouldn't correct it. Dogs need to be allowed to communicate together with one another, and frequent reminders of where they fall in levels of status within the family is normal. In other words, the higher ranking dog occasionally giving a mild dominace display to the lower ranking dog is normal. Correcting for it is just going to confuse the dogs, and can cause relationship issues between them if they see the even higher ranking member of the family (you) disapproving of the displays and thus, in their minds, disapproving of the hierarchy they've worked out amongst themselves.
Dog butt sniffing is the equivalent of a handshake. It's a greeting ritual, not a display of dominance/submission, though generally that sort of thing will follow as when 2 dogs are together one of the first things on their priority list is to determine where they rank in relation to one another.