How is damage dealt to enemies calculated?

The damage dealt from a match, as you said, takes into account the highest team member's damage value for a given tile. This is shown on the board by the icon of said member being shown on the tile. A simple match-3 is simply that character's damage for that color x3.

A match-4 (and above) complicates things. The column/row destruction doesn't only have an effect on the layout, it also adds the damage of the whole row to your match damage. So a match-4 isn't simply

tile damage x 4

it's

(tile damage x 4)+(damage of the remaining tiles in the row)

where the remaining tiles get the damage from the hero that has the highest power in that color, as indicated by the icon.

A T or L-shaped match-5 adds the damage of BOTH the row and the column.

A combo, or cascade as it's usually called, alternates between the heroes, as you can see in the animation, getting the damage from the character with the highest damage in the corresponding color. Cascades anyway are subject to diminishing returns, as you correctly guessed, so after 3 or 4 subsequent matches the damage becomes negligible.

Anyway, if your main goal is to maximize damage dealt, match damage can only help you up to a certain point. When you start developing your roster and get a good amount of 3-star heroes, you realize that matches are only a mean to unleash your powers. Especially in PvE you quickly realize that match damage becomes irrelevant very fast and the only way to end the game with a victory is to throw any special attack you have at the opposing team. In PvP too, where closing a game quickly can make the difference between a top-10 and a top-100 placement, you can't rely only on match damage to get through the game.

Combos though can still be a valuable asset, since getting one off means you'll gain a LOT of AP, allowing you to use you hero powers multiple times and to end the match quickly.