Does working in Target Disk mode hurt hardware?
That won't harm anything.  In Target Disk Mode, your MacBook Pro behaves like any external hard drive.  You're simply booting the iMac from the MacBook Pro's hard drive.  This is exactly the same as booting from a regular USB or FireWire hard drive.

Note: When you do this, none of the hardware on your MacBook Pro other than the hard drive is in play.  The CPU, RAM, etc. are all powered off.  Other than the hard drive, you're still using your iMac.