I sent some privateers out to blockade, I heard money sounds and collected various little sums of money however I don't really get what's going on.
How much area do they blockade?
3 tiles in all directions totalling a large 7*7 square, the same as all cities. For Privateers to gain gold from a specific city however, you MUST make sure the city tile itself is blockaded AND you must not be at war with the blockaded civ.
What effect does the blockade have on my enemy?
I think of blockade doing 3 jobs, this greatly simplifies how it works.
1) Prevents cities working of all coast/ocean tiles in the blockade zone, provided the ship can physically reach them.
2) Blocks trade networks passing through blockaded tiles. This prevents trade routes forming and prevents the movement of resources, but only if all possible routes are blocked.
1) and 2) work for all ships at war and for Privateers at all times!
3) All coastal cities inside the blockade zone lose all trade route commerce provided the Privateer can physically reach the city. All blocked commerce is given to the blockading player as gold.
Other cities however, can trade to the blockaded city, (including yours

) and resources are not blocked unless all possible network routes (i.e. road/river/fort) are blocked.
3) only applies with Privateers blockading cities belonging to someone you are not at war with.
Do they lose the money I am getting?
They lose the commerce the trade routes would otherwise create
Do they lose access to resources?
Sea resources caught in the blockade are immediately lost, land resources still need the trade network cut.
What determines the amount of money I get?
The total commerce value of all trade routes in the blocked city, 1 ship can also affect multiple cities
If I have a stack of 4-5 ships all blockading the same spot, do I get money for each or is this a waste of ships?
You only gain the gold from one ship, stacking is wise however as they provide a detterent against massed AI caravels that like attacking Privateers.
You can find some more info in
this thread
And I posted some examples of Privateer mechanics in
this one