File types can be blocked on a per Web application basis or globally.
The settings are made from the operations tab of the central administration web site.
Essentially it is a list of file extensions that are not allowed. SharePoint only checks the extension and then allows/disallows it.
So if you try to upload an exe file and find that it is blocked, you can change the extension to .doc and upload the file. Antivirus checks the file content and decides whether it is a .doc or .exe file.