Working well or not, most horses with lather up down there when they work up a good sweat. I think the only exception would be a horse that was too thin or had horrible conformation and their butt didn't rub together.
Probably what that lady was talking about that it meant they were working well, although not in the same spot lol, is when a horse foams at the mouth with the bit. Usually means the horse has a relaxed jaw, is mouthing the bit, and is taking the contact.
Yup, it's just that the horse is working/sweating, and with the legs rubbing together, the sweat lathers/foams up. The same can happen on the neck if the horse is sweating and the reins rub on the neck. It's just like when we wash our hands. We put soap on them but when we rub them together, they lather up.