1. How is the machine cycle of a processor(for 8051 its 12 clock cycles) calculated? See its same for all 8051 family members though they are designed by different logics- CMOS,LS,HSMOS....
the '51 does NOT have 'machine cycles'

2. Instruction cycle in 8051 is a combination of how many and what cycles(read cycle,write cycle,fetch cycle.....)?
the 'instruction cycle' for the traditional '51 is 1/12 the clock. the number of instruction cycles an instruction takes vary from 1 to 4.

3. Data sheets say that 8051 has an internal oscillator
and it does, I know of none that do not.
then why do we need a crystal oscillator for 8051(connected to 18,19 pins)?
you are confusing "crystal oscillator" with "crystal". The oscillator inside a '51 requires a crystal, that does not make it that the '51 does not have an oscillator.

Anyhow, these days, you can get almost whatever you want (fast execution; internal oscillator with 'frequency network" (i.e. no crystal required; all kinds of I/O; ....)

Erik