Thats right, Daggerfall uses blocks to assemble terrain, towns and also dungeons.
You can browse those building blocks using Interkarma tools at dfworkshop.
http://www.dfworkshop.net/
The site was updated recently with pictures of huge towns which are assembled from town blocks. Each one has something around 4 or 6 medium houses. A huge town like Daggerfall or Sentinel around 8 town blocks of length and fits into one pixel in the 1000x500 pixels world map. From that you can get an idea of how big Daggerfall map is, but this is always a subjective idea.
I don't think that one terrain pixel in the wilderness matches some special terrain block. That would be a model the size of Daggerfall city just for one pixel of the map. Most likely there are terrain tiles the size of a town block that repeat endlessly trying to fill all the empty wilderness space.
Dungeons also use blocks, but are much bigger, the size of Privateers Hold. You can get an idea of how many blocks a dungeon has when you bring the dungeon map and look at the yellow layout on the left. The border yellow squares are only used to close or connect the doors that leave out of each block. A huge dungeon is somewhat the size of 5 Privateers H dungeons.