When you click MakeMap while in the TE, the TE will make a Map.Bmp which you'll find in your C:\Program Files\HTC\aheditor\terrains\YourTerrain folder.
1) You need to rename this from map.bmp to the name of the terrain you are building ( YourTerrain.Bmp).
2) You then must convert this .Bmp to 256 colour.
3) You then must place this .Bmp in your C:\Program Files\HTC\aheditor\terrains\YourTerrain\texsrc folder.
Note! You'll need to make the texsrc folder.
Pokie