The Playlist is not in number order.
Click on the left column, the one with the number sequence in it, so that there is an upward pointing arrow in the number column. That sorts the Playlist into the sequence order you created and then you should be able to move songs around the list.
Until you do that, the arrow will be on one of the other columns, which means the list is being sorted by that column.
If the arrow in the number sequence collumn is facing down, you can still move songs around, but the list is in reverse order.