Until some time ago (a few weeks or so), I’m pretty sure I could still come across comments written by users I blocked. I know that because I started to tag the users because of that. Now I’ve noted that not only comments by blocked users are completely hidden from me, but the entire thread starting from them, including responses by other users, is invisible.
I’m not really sure if that’s the intended behavior (and if it’s piefed or my instance that does it).
AfaIk, as the fediverse has no means for preventing somebody from fetching content, unlike it used to be e.g. on Twitter, blocking someone is not mutual and essentially just hiding their content (interaction) from your view.
If you block a user, it doesn’t hinder the user from reading your content or interacting (voting, commenting) with it.
Instance wise, as e.g. my home instance feddit.org is blocked by dbzer0, their users cannot see content (posts, comments, votes?) from feddit.org users, while for the other direction everything is visible. You just have to keep in mind that you would reply to a dead mailbox and as a result, I assume, the reply would remain localised on your instance.