Blocking an instance only hides communities from that instance.

For actual blocking, there is only individual blocking at this moment

I don't know if blocking all interaction is possible or not. It can be confusing with federation. As far as I understand, instance blocking pertains to posts and not users. You won't see posts from the instance, but other mutually federated posts can still have comments from the instance's users.

I'm less clear on how user blocking works, but I imagine you wouldn't see comments the comments at all in that case. They can still see and interact with your comments/posts (I think), you just won't see it yourself. You'd probably have to block each user individually since I don't think Lemmy has that functionality.