Right now, it is functionally useless. All it does is prevent you from seeing what they type into chat, which is actually detrimental if they are talking crap about you.
If someone is on your blacklist, they should NEVER be in any DF, PF or instance you are in, and vice versa.
You should also have an option to mute them from any/all of your chat logs, or not. By default, the blacklisted player should not be able to send you tells.