Not quite. Blocked means you won’t see any of their posts, it’s something users can do.

Defederating is something instance admins can do. Defederating from an instance means everyone in your instance can’t see their posts, and they can’t see ours from here on out.

Here’s where people get confused: even after defederating, their communities and all of their older content still exists here. But, you can think of them as “dead” communities. Anything you post there won’t be federated, meaning only your instance will see what you post there. All other instances won’t see your post on a community you’ve defederated with, so it’s important to stop posting there and instead post on communities you’re federated with.