Tecnically, yes, servers can block by IP. You phone can also block by IP if you are connecting directly with that IP.

For instance, when you download somebody's profile picture, if the picture is on a "stalking server" that server can log your IP and triangulate your location (+/- 1km). If that is the case, your client could offer a feature to block a given IP and never ping that specific server (or url) anymore. Blocking/Hiding users on Nostr basically does the same.

But on Nostr, you don't receive your stalker's IP and he (it's always a he) doesn't receive yours. Your relays do see your IP and they can stalk you. But you can choose those.