The word damn being blocked

You have a firm grasp of the obvious. Dont lose that quality.
And yes, although the word C0ck is technically not a swear word used in this context, it is still blocked. You are very astute in your observation.

What they need to do is make it so you can flag words. if the made it so you can flag words then there would be no point in banning people. because people could just use the filter and if people are unwilling to use a customized word filter then to bad imo.

That is a great theory, but unfortunately it is useless just because anybody can turn OFF their chat filter, then in the same motion, report someone for swearing. And that person would be banned.
ANet is funny that way, they offer a chat filter so that you may view the swear words but will still get banned for using them.

This is a great idea, but Anet has already said (Gaile herself) that the chat filter is comletely optional. Anyone who gets offended by language shouldn't turn the filter on unless they want to and it is perfectly permissable for those player to report any and all language that they come across.