I've come to find out that all terrains are stored as 512x512 maps; that explains how you can continue to fly off the edge of a "small" map seemingly forever.
So when starting a new terrain file and choosing a terrain size in the TE, it's only setting the scale at which your elevation/ground/water maps are imported/exported - since each file is always the same dimension, right? This in turn would determine the distance covered by the standard 25x25 mile squares on the CBM. You could theoretically use the same section from a DEM map, properly scaled in the 1024x1024 elevation bmp file, and create terrains that look the same, but one could be 256 miles across (with 10.25 grid squares on the CBM), and one could be 64 miles across (with 2.5 grid squares).
And the "map size" you can choose from the menu is only for creating the CBM based on the "terrain size" you're working with? Since the CBM file is always the same dimensions, this would affect how much of the terrain is rendered for the CBM, right?
I might be confusing the issue, but in playing around with importing DEM data for the English Channel last night and rendering a CBM for it, the above statements kind of make sense.