Nonlinear guided wave propagation in plates with localized micro-scale damage is investigated from a numerical standpoint. The role and interplay of three important aspects, namely damage distribution, damage intensity and its spatial extent along the direction of wave propagation on second harmonic generation of guided waves from the S0 mode at 0.5 MHz is studied. Second harmonic generation from the S0 mode (0.5 MHz) and the S1-S2 mode pair (longitudinal wave speed) is also investigated for varying degrees of micro-scale damage through the thickness. While second harmonic generation from the S0 mode was found to depend only on the volume fraction of damage through the thickness, the same for S1 mode revealed a non-monotonic response to through- thickness damage and was more due to the contribution from the surface damage in comparison to volumetric damage. Hence, it appears that second harmonic generation from the S1-S2 mode pair can be used to efficiently characterize and detect surface damage.