What you heard is a bunch of nonsense, since players on online games aren't DIRECTLY connected to you. You are ONLY connected to the server you're all on. Unless the server itself it dodgy, there is no way to attack another player's machine via the server.
Peerblock blocks IP addresses that it gets from lists that you can import. If you know the IP numbers of malicious users/organisations you can trivially entirely block their access to your PC. However, a lot of these lists are subscription based (so cost actual money).
for example:
https
/www.iblocklist.com/lists.php
They can of course still be on a SERVER you are connected to, despite Peerblock. So you can still be playing with otherwise blocked people in online games etc, since you...