Upon using ubuntu 12.04 i detected that the native resolution of my monitor i.e.(1280x1024) is not detected as one of the available resolutions by default. Hence i ran the command cvt 1280 1024 60 and used to output to add a new mode through xrandr. Some forums have reported monitor damage due to setting such a custom resolution. Will setting a resolution which my monitor supports through xrandr possibly cause any damage to the monitor?
That shouldn't do damage to a modern LCD/LED monitor, it only used to happen to early LCDs and some CRTs that don't have much intelligent circuitry to detect if someone is sending it settings that could damage it. You should be fine, simply because it might just not show any picture at all because of incorrect settings.
I don't know about xrandr, cvt etc... toold, but in my human opinion problem with damage occur when you will try to set wrong resolution + wrong refresh rate of your monitor and its not depended about what tools you will use to set it. Anyway i think all new monitors (for sure all i was using since today) are protected before trying to set wrong refresh rate - your monitor will just turn off them self.