Does this mean that the greyed out seat is occupied, or does it mean it's un-bookable?
I don't know about the LNER site as I book with Trainsplit, which shows the seats that are bookable, and the ones that are already reserved are shown as such.
Seating plans are based on approx 1m social distancing, with every row in use, and it not being possible to reserve two adjacent seats. At tables, two people can be reserved diagonally opposite each other. If you do not wish to be diagonally opposite someone, book an 'airline' seat.
Most LNER trains are lightly loaded at present, though there are some exceptions. If you can say what the journey is, people may be able to assist further.
.... they explained they were implementing a 1m rule (thats a new one since all I have heard where I am in 2m rule in nearly everything, is LNER still 2m?) ...
Guidance (not rules) are 2m distancing if possible but this of course won't always be possible (and is not practicable on trains except when it is very quiet) and 1m if that is not possible; however in recognition that even 1m is not always possible on public transport, face coverings are mandated.
Each company has its own interpretation of this, but LNER has every other seat reserveable, with reservations compulsory, so you won't normally be sat immediately next to anyone.