Does [Cache blocks] in Performance means that blocks generated by Views are also cached?
In D6 views caching you have two kinds of options


Cache your query results -- Length of time your raw query results should be cached
Rendered Output -- Rendered HTML Output to be cached


In Block Cache in Performance settings

Block Rendered HTML Output to be cached which will be same as view setting.

For best performance you should use Views Caching option since it provides query level caching as well as rendered output caching.