Cold setting refers to bending steel at room temperatures which is pretty common when frames are being built and when corrections to small misalignment are made... steel can withstand this as long as the area has not been taken past it's elastic limits as this is when cracks/ breaks form and when it comes to this steel can withstand more bending and reshaping than any other material.

Hot setting refers to bringing the steel up to working temperatures where it becomes easier to reshape but tends to be rather destructive to paint finishes and is usually applied to raw frames... we have re-spaced tandems at our shop and because of some construction types you cannot cold set the drop outs to widen them.

With your dropout the barrel adjuster creates a point of concern as drilling and tapping a hole in the casting weakens it which is not a problem during normal operation as it is not a load bearing area and the lower part of the dropout and hangar also bears very little load and serves to guide the axle into place and support the derailleur. It is when you apply force to the lower part of the casting to straighten it that force will also be transmitted through the dropout and if there is a potential for breaking it will most likely be at the barrel adjuster.