this permission is used in blocks/moodleblock.class.php to define the function user_can_addto($page)
Yes, but not only there. Please also refer to other places where the capability is checked such as the user_can_edit() method there. Also https://docs.moodle.org/en/Capabilities/moodle/block:edit
There are block type level block/xyz:addinstance and block/xyz:myaddinstance capabilities that control adding new block instances.