I see. The search function is for searching specific terms over every thread. But I agree that there should be more options to filter your search. Feel free to make a suggestion here.
When you turn on Federation status, you are able to see posts from every other instance. When you turn it off, you only see posts from kbin and other closely federated instances.
There isn't a way to block whole instances.I'm not sure about the second point, so hopefully someone else can answer that for you. You can suggest features here.