Blocking determines your chance to defend against physical melee and ranged attacks with physical damage or delivered physically, like Exploding Arrow. 75% Blocking will indeed stop 75% of attacks from hitting, regardless of whether you are attacking, or standing, or whatnot. Note that if a player is running, the Total Blocking percentage is reduced to 1/3rd of its original value, with a cap of 25%. The block animation will only play if you are not doing anything else. If the roll of the dice denies a true block, or if the player can't block at all, then and only then, are skills such as Amazon Avoid and Assassin Weapon Block checked for blocking.

There is a 75% Cap on the % Chance to Block.

Probability is computed that a player will block as follows: Total Blocking = (Blocking * (Dexterity - 15)) / (Character Level * 2)