max. output current of USB port and damage to the USB device
Would it mean that the host device is never damaged by a short circuit on a USB guest device?


No, it means that USB (2) peripherals must be designed to never draw more than 500 mA.

In fact, they must be designed to not draw more than 100 mA until they have "negotiated" for a higher current allocation from the host.

A good host could be designed to not be damaged if the USB power pins are shorted, but you should not count on this behavior.