Undervolting is harmless to the CPU as the manufacturers undervolt almost all CPUs on a routine basis- it's the part of Cool 'n Quiet/Intel Enhanced SpeedStep that does the most to quash heat production and power draw. CPU makers also undervolt specific lines of CPUs, such as AMD's Turion 64 MT series, Athlon 64 & X2 Energy Efficient, and the Opteron HE line. Intel undervolts the Pentium M LV & ULV, Core Solo/Duo LV/ULV, Xeon LV, and Core 2 Duo LV and ULV.
The only risk that you run in undervolting is an unstable system because you are in effect overclocking the CPU for that particular voltage. If you undervolt too far, your system will lock up and you'll need to restart. I *highly* suggest using a software tool that modifies the EIST/CnQ voltage tables instead of setting a Vcore in the BIOS. There are two reasons: one is that setting a Vcore in the BIOS generally disables CnQ/EIST and the second is that you don't have to jumper the CMOS clear pins and reset the BIOS if the Vcore is too low to enter BIOS successfully. If you lock it up using software, a reboot will simply boot the CPU with the normal Vcore and it will be sure to boot. Plus, some boards like my abit KN8-SLi do not support setting a Vcore lower than the default top-speed Vcore in the BIOS, so I have to use software. The only advantage to a BIOS undervolt is that the software tools will generally refuse to undervolt the CPU beyond what the lowest Vcore for the lowest frequency supported is in the best-case scenario. Those values for Intel chips can be found in the min/max tables for electricals in the CPU's datasheet from intel.com. AMD chips have a similar restriction but AMD is usually behind Intel in publishing CPU information so the data for any 65 nm and mobile CPUs is missing as of the moment. Suffice to say that Core 2 Duo mobile chips cannot be taken below 0.925 V and AMD 90 nm desktop chips bottom out at 1.100 V.
I undervolt my X2 4200+ 0.100 volt at top speed, from 1.350 V to 1.250 V. It runs rock-solid stable and puts out significantly less heat- often about 7 deg C less at my current fan speeds. The idle voltage is not able to be lowered from 1.100 V, such as I noted before. I use the CPU Power application (cpupw) but that's a Linux program and does not work with Windows. I believe that RMClock is the correct Windows tool to use; ask the Windows forum guys what they use.