Why would I use blocks instead of creating functions or methods?

Yeah, you're correct, basically a block just iterate through each item in the collection and pass it as argument to an anonymous function (function with no name); and yes, since right now you're learning the basics of Ruby from simple examples, you probably don't see the differences of blocks VS defining your own method to iterate through a collection.

Let me say that block is surely the defining feature of Ruby, it lies at the heart of Ruby's raw expressive power. You'll certainly see more examples of how using block makes your code more concise and easier to read, but right now I'm afraid I can't explain too much about the power of blocks without touching on subjects you haven't learned yet.

Let me give you just this one example. Many of the predefined methods in the Enumerable module takes only block as its argument, say, map for example, it traverse through a collection, does some computation to each item, and return a new collection, if you were to define the method your own, it'd be sth like this:

def my_map(arr)
  result = Array.new
  for index in arr
    result << index*3
  end
  result
end

my_map([1,2,3])   #=> [3,6,9]

Nothing wrong with this code, it works; but if you use map instead, and pass a block to it, then

[1,2,3].map {|i| i*3}   #=> [3,6,9]