Damping (usually the result of a frictional force) is simply any force that causes the oscilator to lose energy. Usually, the damping force is proportional to the velocity. In viscous fluids, expiriments show the damping force to be proportional to velocity squared.
Really, that is all there is to it. Just add a force to each of your points, oppisite the current direction of motion with magnitude proportional to the current velocity of that point (or v**2). Expiriment to make it look good.
quote:
On a slightly related note, anyone any ideas on how a single point disturbance can be made to spread outwards and ripple the whole surface?
I have never tried this before, but I think with your system of points, maybe you could loop over all the points. If any point is higher than its neighbor, then move the higher one down and the lower one up. This result should then propagate out. It might be a bit tricky to setup, though.