First you have to reach the right level of technology. I can't remember for sure, but for some reason I think Naval 9 allows you to do it. Once you have the ability to blockade, all you have to do is leave 1 or more ships in a sea square that borders an enemy coastal province. The enemy ports on that sea square will then get little chain icons around them and they will be 'blockaded.' The more of the enemy ports you blockade, and the longer you blockade them, the more war weariness (and other bad stuff) that starts to accumulate on them. You also get war score (for peace negotiations) from blockades.
This is usually only advisable once you have naval superiority, though, as it requires you to scatter a lot of little fleets around. If the enemy still has a strong fleet, they can run around knocking out your blockade fleets one by one.
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