Even if they would use "unsigned int" (32 bit) as their number format, since damage is more or less always positive (maybe negative damage could be a heal but I doubt it), you could process numbers from 0 - 4.294.967.295 without any downside whatsoever. A simple zero would take the exact same space in memory as 4.294.967.295, 4 bytes to be exact. I'm not sure right now, but I believe that the damage displayed is in fact a rounded number, implying that at least a "float" is used for the internal number format.
Now, with today's CPU architecture, remember, the NES or SNES times are long gone, there really isn't that much of a downside anymore by using floating point arithmetic. With 32 bit floats, numbers can go as high as 3,4·10^38 - with 64 bit doubles, it's 1,7·10^308 (that is quite huge) - without any performance loss.
Long story short: there will never be an item squish because of performance issues.