It's a bit convoluted. If you click profile on the main page and pick any one of the three options (Summary, Account Settings, Forum Profile) you will come to a page which has three items near the top (Profile Info, Modify Profile, Actions). Selecting Modify Profile you will see Buddies/Ignore list as the last option.
If someone is on your ignore list the text of their posts will be hidden (but not the post itself) and personal messages from the ignored member will be blocked (that might be configurable). If a non-ignored person quotes an ignored person you will see the quoted message of the ignored person.
Correct. Took me a while to figure out, and every time I amend the ignore list I have to figure it out anew.

To be somewhat redundant:
Hover the cursor over "Profile" and there's a dropdown menu with 3 items. Select the third, "Forum Profile".
On the next page, hover the cursor over "Modify Profile" and there's a dropdown menu with 6 items. Select the sixth, "Buddies/Ignore List..."
On the next page, click on "Edit Ignore List" (not a dropdown)
Etc. as described above.