You have it exactly right; they're marking their territory. Remember dogs have a much more sensitive sense of smell than humans, and can differentiate between their own urine and that of others.
Cats do the same thing. Have you ever had a cat rub up against you, or watched it do the same with a piece of furniture? Cats have scent glands that are activated when they do that. Hence, when the cat rubs you, it's claiming you as itss property.
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