Bristol City, whose hopes of a play-off finish have all but evaporated, had twice taken the lead through goals from Ivan Sproule and Dele Adebola, but they were reduced to 10 men as Jamie McAllister was dismissed before Forest's revival.
Davies, whose side leapfrog Norwich in the table, said: "It was a fantastic display of courage in the end.
"What we have here is fantastic young players, who have been asked to play under immense pressure and have shown great courage. Against a team chasing the play-offs.
"It was a great three points for us. Three points at home is crucial.
"We had a couple of players who were nursing injuries beforehand, so we all showed excellent attitude."
Davies was also full of praise for his match-winner Blackstock, who celebrated his second start for the club with his first goal.
"He led the line brilliantly. You need someone like that up front and he was a big asset to us holding the ball up," Davies said.
"His flick ons were invaluable and he showed great technique for his goal."
The visitors had been gifted the lead in the 14th minute when Forest goalkeeper Iain Turner made a complete mess of a low cross and allowed Sproule to knock into an empty net.
The hosts, however, were level before the break as Robert Earnshaw, who was far and away Forest's biggest goal threat in the first half, slotted past the Adriano Basso from close range.
City retook the lead in the 77th minute thanks to an Adebola header.
The hosts were handed a lifeline five minutes later as McAllister was given his marching orders for a second yellow card for shirt pulling.
And from the resulting free-kick Chris Cohen delivered a superb cross into the near post and Joe Garner was there to head into the top corner, before Blackstock stole the show.
Bristol City manager Gary Johnson conceded that although his side can still mathematically reach the play-offs he is now looking towards next season.
He said: "Of course we want to win the next game, and we will try to finish strong but these players are now looking to compete to get into my squad for next season.
"The end to the match has typified our season, we have gone from a winning position to a losing position.
"Mistakes have cost us, there was three mistakes at the end, two from our players and one from the referee.
"The turning point was the sending off but we should have defended the free-kick. And it means we are all going home disappointed.
"It was a blood and thunder game but I don't know whether the referee was trying to kill the game.
"Credit to the home supporters they won their side a lot of free-kicks but you expect that."