Correct, because issue links can be called anything you want. "Blocked", "Chewed by", "Mr Flibble" - all perfectly valid links
You've probably already realised you need to edit the workflow to enforce such a block.
If you've got sub-tasks, there's a simple condition that says "do not let transition proceed if any sub tasks are in status x/y/z", so you can use that on them. Links blocking is another condition you can add and use, but I think it's in a plugin and I don't know if that plugin is installed in OnDemand...
Links are one system. Sub-tasks are another.
Sub-tasks belong to a parent issue (and hence the same project as the parent). You can enforce a "do not allow parent to close while subtasks are open" rule using a standard condition (I'm not 100% sure of that actually - it might be in the Jira toolkit or Jira Suite utilities. I've always had the condition, but I've always had those two plugins installed too)
Links are an indicator of a logical relationship between two issues anywhere in the system. They don't do anything other than indicate that there's a relationship
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