You did the best thing that you could of done with that woman. Yorkie's are not the only breed of dog that "teacup" is used. I have seen Chi's described as that too , and Pom's.
My vet even told me his mom has a teacup Yorkie. I laughed and said to him. "there is no such thing" He did agree. I think that term is applied loosley , and it is for sure a way for unethical breeders to charge more money.