What happens to a blocked caller?
As someone posted in your question, it's not true call blocking in that the call still connects to your service but the phone silently rejects it without any indication to you. Since it still hits your voicemail, it's not really blocked, just not answered (more like Do Not Disturb)

I just tried this with my wife's phone. When she called, she initially hears a single ring but then it is immediately bumped to voicemail. 

As I mentioned you aren't made aware of this, and to the caller it just appears that you've instantly declined the call. 

With regards to SMSs, you can still send them SMSs and they can even see when you're typing the message, however, you won't see them typing, nor will you receive any texts from them. On iMessage, it actually appears to them that you have received the message.