I think the term block is misleading, and is more akin to muting on other platforms like Mastodon. Anything you personally do on your Lemmy account only impacts your experience with Lemmy, and has no impact of what other people can see.

Server admins on the other hand can defederate from another server. If the server you’re on defederates from another server, any existing content from the blocked server will still appear, but no new content will come in from the blocked server. Anything you post to that server will not federate over and would only be seen by people on your server.