I had blocked dates booked once, too, @Laura2592 . What a pain. No advice beyond what you already did. I can tell you the long-term side effect of that having happened is CONSTANTLY checking the calendar to make sure the blocks are still in place. I was obsessive about it in the months before a family wedding was going to happen here. Ugh.
I'm writing because I do know the answer to where that screenshot came from. The guest chose "host wants me to cancel" from the cancellation-reasons dropdown. That's when that screen shows up.
The guest wasn't going to be penalized. It was just that they booked a date that looked open to them, cancelled because you told them to, and entered the correct information.