the number of hereditary peerages was cut to shreds under the new labour government. who, then, incidentally turned the house of lords into a politico-clique chamber for 'advisors' and party donors. so we got rid of hereditary power and replaced it, instead, with plutocracy, basically. great stuff.
in times gone past, yes, those hereditary titles would have been given out at court to courtiers/retired politicians/imperial do'gooders at the discretion of the monarch. although some of the peerages and 'landed' titles go back to the norman conquest, effectively, so we are talking extended patrilineal bloodlines going back to william the conquerors' barons. there might be a few that are extant from even before this time but i don't brush up on my debrett's very often.
with that said, i'm still glad for the HoL and think they perform their function reasonably well. the 'cash for titles' thing is obviously a complete travesty of democracy and needs to be reformed and/or thrown out entirely.
knighthoods are generally given out for public servants or people who have been prominent in public/civic life for their entire lives. there are lower orders, beneath the knight deal ('sir' or 'dame') which generally recognises your contributions and good works. whether that's charity, public service, being a noteworthy public figure, etc. that's what the 'order of the british empire' (OBE) is. there's several ranks of that, too, just to make it more confusing. you could probably think of the sort of knighthood that tony blair got, 'the order of the garter', as the presidential medal or something like that. probably only about 20-30 people alive at any one time have that senior-most title.
i'm not surprised tony blair got one. depressed, yes. surprised, no.
with that said, i think there's something more than a little suss about dilbert continually ranting and raving here about the evils of tony blair and his heinous war crimes (p. true), but then wanting to deny afghans or iraqis refugee status in the UK/europe/australia/etc. you can't continually highlight tony blair's monstrous deeds in the region and then demonize the people who are trying to flee said devastation. how the fuck does that work? is tony blair guilty of monstrous crimes? if yes, then understandably there are going to be human victims of said crimes, no?