If he's playing with a toy and another child just touches it he sits there and cries his heart out
I'd largely ignore it if he's just making a fuss over nothing. I'd reassure the other child that it's OK, they did nothing wrong (and reassure the parent if approached). But I would ignore any histrionics from my child, not pander.
The other childs parent is probably only asking what happened because you are comforting your son - the assumption being that if he needs comforting then the other child may have done something and need consequences.
I would comfort and reassure if your son is aggrieved in some way - usually to do with sharing in playgroups. But if its just dramatics, then I would go to my child and check they were OK and find out what happened. Say something like "its all OK, you carry on playing". Maybe distract by taking him elsewhere in the room to play with his toy. But after that would ignore and give the dramatics no further attention.
Don't worry about what other parents think - ignoring a child who is creating is nothing new, everyone will have seen it before a million times and will empathise.
If his dramatics are to do with sharing, then it's a different matter.
If your DS is playing with something and someone comes along to try to take it away, it is quite acceptable in playgroups (round here at least) to say to the other child "DS is playing with that" and ensure your DS keeps it, without making a big fuss.
But if your DS has been hogging a toy and it's about time he did share and take turns, then I'd give the toy to other child and try and distract my child with another activity, preferably elsewhere in the room.
It is just a phase, but you don't need to be the Mum in the corner with the screaming child! Just leave your child where he was an let him get on with it while you return to your cup of tea and keep an eye on him from afar. If mine didn't calm down within 10 minutes or so then I'd assume over-tired and go home.