NUTTZ, I only know bump mapping is used on the terrain in AH, but do not know how it is applied.
The effect of the bump mapping in the current terrains appears to increase the "feel" of speed as you fly over the terrain, especially at low altitudes.
If you are creating a terrain, bump mapping just gives the illusion of a 3D texture. This is much cheaper, graphically, than actually altering the vertices to give height to a surface.
The effect is subtle in a graphics world where lighting is uniform, but in point, or spot lighting, the effects can be very dramatic. In general, bump mapping works by adding another lighting calculation to the pixel based on the bump map texture. Bump map textures are grayscale, and the color of gray dictates how the light calculation is done. Lighter colors raise the elevation, darker colors lower the elevation.
I was not aware how the AH terrain was setup, but with 9 vertices per square mile, it makes a lot of sense to use bump mapping. It allows you to create more dramatic effects between the vertices without adding more vertices.
Many games have not used bump mapping as it requires more memory and more calculations. If you use the hardware bump mapping on the newer generation of video cards, you need quite a bit of video ram as you are loading another texture on top of the default one for the poly. If you do it in software, you do not need as much video ram, but the graphics performance could suffer.
That help?