Basicly, this stops people from seeing your chats, and stops you from seeing their chats. Muting a person will stop them from chatting with you in one game, but if you both leave the game where one person was muted and went to a different game, that person would be unmuted.
To toggle the mute button, you click on their name in the leaderboard, and "Mute/Unmute" would be under "Report/Send Friend Request/Unfriend."
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