Just did a quick test - such an easy test that I'm sure I'm missing posts above where people have already done this, but at the risk of this being a repeat ...
I phoned myself from my landline. Mobile rang.
I deleted my landline number from my contacts and phoned myself again. Immediately got a "missed call" notification and the call from my landline went to voicemail. I hung up. I then got an sms (this is network dependent I assume) from my network provider stating "you missed a call from xxxx they didn't leave a voicemail".
So for me, it's working as I want it to. However, I can see myself toggling the "Silence unknown callers" option regularly, as some days I'll be expecting calls from people who are not in my contact list. But most of the time, especially out of office hours, I'm not.
Apparently, this is done by Siri and doesn't just search contacts, but also searches iMessages and emails for phone numbers. I'm not sure how it'll search all my emails as they're IMAP and not local.