Basically, you can block anyone for any reason. Below is a list of examples of why you should block someone. This list is by no means exhaustive; if you feel you need to block someone, even if the reason isn't on this list, then do so.
Someone keeps spamming you with unwanted messages
Someone sends you one or more insulting and/or harrasment-type messages.
1. Go to the House of the person you want to block. You can do this by typing in his/her username or number (if you know it) in the top-right box where it says "Enter username (or #)" right under the green "Help! How does Elftown work?" button.
2. Scroll to the bottom of his/her house.
3. Click the button that says "Block this member"
4. There! You're done!
If someone is harrassing you, it would also be a good idea to report that person to the Elftown Guards as well as block them.