There is: Er is / There are: Er zijn --> Here "er" is the state of presence. "Daar" is more like a state of location. Like "here" and "there".
What is the case here? Does he/she imply that there is blood over his/her arm ( Maybe (s)he's cut it with sth.) or there's blood inside vessels in his/her arm. Since "zitten" is used, I tend to understand that there's blood over his/her arm. Maybe (s)he's a butcher. :) Thank you.
It means that there's blood on his/her arm.
If the sentence had meant that there's blood 'inside' the vessels, then in would have been used.