Yes, a sword could get notched and damaged.

As a rule, as far as we can tell, You would not want to block or parry a sword blow with the edge of your weapon. For one, as you have stated, this would damage the edge, which in turn reduces cutting power and can open up nasty problems with rust.

Swords are also expensive, so repair and maintance would not be cheap. A swordsmith was a specialised workman.

The other issue with blocking edge on edge is that that there is no room to counter-cut. If I block with the edge of my blade turned into the edge of your blade, I then have to turn my blade edge back towards you and swing, which wastes time and energy, both of which are life in a swordfight. If I block with the side of my sword I can retain my edge allignment towards you, and swiftly return a cut.

It's inevitable that a sword will get damaged with use. Sometimes it's a choice between blocking with the edge, or not getting your sword up in time, but blocking with the edge on purpose would not be advised, even when supressing a cut with one of your own.

This topic is covered by many of the masters; Fiore, Sigurd, Lichtnaer (sp?), and illistrated in their works as well as other primary sources.

On a personal note, my Longsword had many nicks and burres, and the best way for my smith to repair it was to grind the edge down by a single mil on each edge.