Yes, that's correct.
Here is an example that can be done by hand. Examples are easier to understand when X and Y are sets of combinatorial objects. I replaced them with numbers above for simplicity of the definition.
Let N=4 and let n=2. Let G be the action of S_2 on Y={(12),(21),(ab),(ba)} which switches the positions in the tuples, defined by
(1,2) *_G (a,b) = (b,a).
Let F be the action of S_4 on cycles (or cyclic permutations, if you prefer) of length 4, that relabels the elements of a cycle (or, if you prefer, acting by conjugation). That is., X={(1,2,3,4), (1,2,4,3), (1,3,2,4), (1,3,4,2), (1,4,2,3), (1,4,3,2)}, and, for example,
(2,1) *_F (1,2,3,4) = (2,1,3,4)
Then the functorial composition is an action of S_2 on the set X. The most intuitive way to see it is to think of X as the set of cyclic permutations of Y, and S_2 acts by swapping the positions in the tuples. For example:
(1,2) *_H ((12), (ab), (21), (ba)) = ((21), (ba), (12), (ab), so that's a fixed point, whereas
(1,2) *_H ((12), (21), (ab), (ba)) = ((21), (12), (ba), (ab) is not.
Does this help?