Was doing some cleaning and noticed the green grounding screw inside my metal fluorescent fixture is not used.

We have conduit. The fixture is connected to the conduit with a connector and a knockout. I assume we are mechanically grounded as I have read about here.

There is no grounding wire coming from the ballast.

So is this a bad thing? Will my light not function properly if that green screw isn't used?

 

Sounds like your metal conduit is providing the ground.

 

But I'd bet the metal case of the ballast is screwed to the housing.

 

It is screwed to the housing.

I found the installation instructions and it says to make sure its grounded otherwise it can cause a shock hazard, overheating, premature bulb failure or a non functioning light....

I understand shock hazard but what about the rest? Please explain....

 

Your conduit is the ground for your fixture. If the fixture was not grounded it most likely would not light properly as a grounded surface is needed along the length of the lamp. Hear is a good explanation of the need for the grounded reflector:
"Newer rapid start ballast designs provide filament power windings within the ballast; these rapidly and continuously warm the filaments/cathodes using low-voltage AC. No inductive voltage spike is produced for starting, so the lamps must be mounted near a grounded (earthed) reflector to allow the glow discharge to propagate through the tube and initiate the arc discharge. In some lamps a grounded "starting aid" strip is attached to the outside of the lamp glass."