One more nit-picking comment: "shorting" and "connecting" should really be used as distinctly separate concepts. A "short-circuit" means that a path in a circuit is closed such that the resulting current (far) exceeds that which is designed to be the maximum allowable current of the particular circuit. In other words, you connect a load but you (accidentally) cause a short-circuit. There are exceptions like the crowbar circuit but you get my meaning.
My recommendation for the OP (vineel567) is to familiarize with the concept of current and voltage sources in basic circuit analysis. I mean the ideal voltage source and the ideal current source combined with their source resistances. Every practical source, such as the lab source in you question, can be seen as a combination of an ideal source together with its source resistance. Understanding the properties of ideal sources takes you a long way in understanding the answers to your question. My suggestion for this topic is to master the concepts outlined in the following Wikipedia link, and you will understand:
http://en.wikipedia.org/wiki/Voltage_sourceSo, what exactly counts as a short-circuit? If you connect say a 0.05 ohm resistor as a load to your lab power supply (say a typical 30V, 3A supply like the one sitting on my workbench), the supply will reach its 3A current limit already at 150 mV of output voltage. For all practical purposes it can be considered a short circuit.
On the other hand, if that resistance happens to be the armature resistance of the starter motor in your car, the battery will happily supply ~200-250 amps to the load and crank up your engine. So in the latter case 0.05 ohms is just a load to the battery, not a short-circuit. A large lead-acid battery can have an internal resistance as low as ~3 milliohms, resulting in its ability to source huge currents for things like turning a starter motor. On the other hand, your lab supply can have an internal resistance of several hundred milliohms or even ohms. You won't notice that much because the lab supply is voltage regulated but still that is the way it is.