You can join an instance with moderation policies that align with your ideals or even host your own instance.
Individual Instance blocks, where a user can block an entire instance are in place. Instance blocks on your instance, where an admin blocks another instance for all the users of that instance. And, community driven, blacklists where an admin can copy paste from.
Even more interesting, is that some instances block any instance that in themselves don't block another instance. In practice, this means that if you don't block Gab, there are a lot of instances that don't want to talk to you.
This works. This gives people the freedom to pick and choose or to move somewhere where they have more or less freedom to listen to others.
Modern day witch hunts. (I'm not defending gab, or promoting it) However, these guilt by association hunts are irritating.
Regardless, it's embarrassing how careless the political-left, whatever you want to call them, carelessly use the terms nazi, racist, white supremacist, etc.
The other way to look at it, just as valid, is for an admin to protect her(or his) "citizens", the people on her instance.
If you intended an instance to be a safe-haven, you don't want people being able to raise mobs to harass people on your instance. Hence, you want to block instances that allow such behaviour.
But, you also want to avoid accidental "retweets" (boosts), replies and whatnot to reach your instance. So you want a thick layer of insulation: not just blocking one "bad" instance, but blocking the instances that interact with that "bad" instance as well. There are probably technical means to get such an insulation, but neither Activity-Pub nor mastodon has these in place. So being liberal in blocks is a pragmatic means to keep your instance a really safe and happy place.
(Do note that you might not need such a safe place -I don't- but people with trauma's, insecurities, issues, or just a wish for a safe and happy place might. And it being federated allows for admins to create such a place. A place where you can be a furry-amongst furries, or a victim amongst a supporting community).
[0] https://www.theverge.com/2019/2/25/18229714/cognizant-facebo...
My understanding of Mastodon federation is that the Europe/American instances generally play along, some alt-rights oriented are cut off, and then there is group of predominantly Japanese instances running incompatible legal ideology on completely incompatible language so European admins generally reject those as horrible dark corners of internet(?)