Sadistic Mutation's card text states: " Forced: After the attached unit deals damage in combat, deal 1 damage to one target unit or capital ."

Does this additional point of damage count as combat damage? I was thinking not, which means it could be assigned to the Sword Masters of Hoeth and not be cancelled. Is this correct?

You are correct that it is not combat damage. Combat damage is only the damage produced by the power icons on units, and Counterstrike.