I can certainly see the pain from the customer side, but then after the explanation, they should have been good to go. That said, we all know that clients and technology often times don't mix and that's why the white glove service will always prevail.
The last line in your post is the scary part of it all. He's in the SEO industry, a field that is rife with people who intentionally rip others off. The fact that he doesn't know how domains and hosting work can only yield to problems down the road for the client.
I guess the only thing you can do from your end at this point is provide pictures on how things work. We used Jing.com a few times for short explainer videos and it might be an option. Sucks to have to go to that level, but in the retention of this particular client, it might be the only option.
Hopefully they don't do the option to refund payment as the domain is already registered. They'd need to pick a new domain if they don't want to pay for it.