I could be wrong but I believe you can still access muted communities via search but they don't show up in your feed; while blocked communities don't come up at all.

I think mute means you won't be suggested content from this person/community/instance in your various feeds they won't know you muted them. block does the same, but also prevents that person from interacting with you (can't send you messages or notifications). I'm not sure what blocking a community would do though.