> well, the camera took 2 AA batteries 1.5v x2 = 3v
Provided the cells are in series, I'd expect they would be, but there is always the chance it uses them in parallel.
> the phone battery I tried to use is 3.5v
A lithium-ion cell is typically 4.2v charged. Did you actually measure 3.5v on the cell before you tried it.
> I didn't assume the .5 over could do any harm.
If the device was designed for operation from 2 AA cells, then it's certainly possible, likely even, that it might fail in some manner at 3.5v, especially when the source is of low impedance like a lithium-ion cell.
> so, is the battery safe to use despite it having been shorted?
It will have a protection circuit as discussed, if it looks fine and isn't getting hot, and appears to be functioning, I would not be concerned about it any more than any other lithium-ion cell, all of which need to be treated with respect.