Making the phone as stolen prevents it from talking to apple services and depending on your device setup, might trigger a remote wipe.
This does not prevent people from using the phone as a phone, or hacking into the device to use software that doesnt require apple services.
The carrier blacklisting the IMEI means they will not allow it onto their network. So if verizon blacklisted the phone, than that phone will no longer be allowed on verizon networks. This does not prevent the phone from being used on AT&T networks.
Typically stolen phones either goto places like china where they are harvested for parts or to markets where the legality of foreign laws do not apply (IE places like south america/africa/etc).
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