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I have decided to begin to learn Russian and came across a sentence that translates as *I'm going home *. However the literal translation in Russian is I'm going homeward.
This raises the question would Я пойду дом be grammatically incorrect as opposed to the sentence written in the question? If the sentence is grammatically incorrect why ? Does the verb to go modify the noun in some way?
Я пойду дом is ungrammatical in exactly the same way "I will go house" is ungrammatical in English. The verb пойти is intransitive and cannot take a direct object.
Part of the confusion is that "home" is both a noun and adverb in English. As a noun, it means "place of residence" (equivalent to "дом" in Russian), while as an adverb, it means "towards a place of residence" (equivalent to "домой"). In the sentence "I am going home", it is serving as an adverb, so you need to use the adverb домой.
Just as English speakers say "I'm going home", but I'm going to the store, to work, to church, to school, etc. (English speakers don't use "to with home" - домой is an exception like this. Just remember that it is special.
домой is a noun in an old form of dative case, as @Quassnoi pointed out. Dative is now changed in sound and is not used for target anymore, but this one word persists in this stable expression. Other examples similar to this (but I'm not sure it's the same historical grammar case):
ехал то лесом, то полем
rode a bit in woods, a bit in fields
Regarding the destination, домой is the only correct form for "go home" in general. But:
я пойду в парк
я пойду на море
Since домой means go home in general, the word with preposition means more specific: я пойду в дом = I'll go inside the house.