This reminds me of a great little article entitled The Zen of Overclocking by Bob Colwell who was the chief IA-32 architect for the Intel Pentium Pro to Pentium 4 processors.
Unfortunately the document is not available to the general public, but should be available to IEEE Computer Society members, and many/most universities networks. It was originally published in Computer magazine, March 2004 (Vol. 37, No. 3) pp. 9-12.
A couple of brief quotes:
Abstract: Overclocking is a large, uncontrolled experiment in better-than-worst-case system operation.
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This issue of Computer [magazine issue] spotlights what I call "better-than-worst-case" design. With normal worst-case design, any computing system is a conglomeration of components, operating within frequencies, power supply voltages, and temperature ranges that were set to simultaneously accommodate worst-case values of every single component. (Modern CPUs don't really do it quite this way anymore, but they once did, and it's easiest to think of worst-case design this way.)
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...Compare the seat-of-the-pants, maybe-it-will-work approach of the overclockers to the engineering challenge confronting Intel and AMD. First, note that this challenge isn't just the flip side of the overclocker's coin. Chip manufacturers must design and produce tens or hundreds of millions of chips; overclockers only worry about one. Manufacturers must set a quantifiable reliability goal, and no, it's not "zero failures, ever." That would be an unreachable—and not very productive—target because hitting it would require avoiding cosmic rays. Even at sea level, that would require more meters of concrete than any laptop buyer is going to find attractive. And even then, the concrete would only improve the odds. It would remain a statistical game.
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Conclusion
If you don't floss your teeth, they won't necessarily rot away. The vast majority of car trips do not include any metal bending, so why wear seat belts? And why not smoke? Not all smokers get cancer. Or you could adopt Oscar London's compromise, "If you smoke, why bother wearing a seat belt?" And some rock musicians from the 1960s are still alive, so maybe all those drugs are really beneficial, acting as some kind of preservative.
As for me, well, I'm an engineer, and I live in a statistical world. I'm going with the odds.
As to the specifics of whether over-clocking can cause permanent damage? Yes, in particular as the lithography technology improves at creating smaller scale dies (e.g. 35 nanometre) the thickness of the insulator / oxide is decreased as well. This means that this ever thinner barrier could fail due to high voltage or deterioration. So the related margin for acceptable error is decreasing (or the margin for failure is rising).
I believe MOSFET transistors are still used for CPU design, so looking at some of the difficulties with MOSFET size reduction may highlight other potential issues that overclocking may cause. At the system-level, overclocking may also cause internal / cross-channel EMI / RFI within the CPU die or any of the other subsystems (e.g. RAM bus), and may reduce the Signal-Noise-Ratio (SNR) such that mechanical or external EMI/RFI are no longer tolerable, and end up producing random errors on the digital buses.
And for the record I have damaged processors due to stupid over-clocking, and poor thermal dissipation. So beyond the theory, it is actually possible.