Im still figuring out the logistics of it....lol
Basically, you check "is a terrain tile" and "display terrain underneath" -
Now browse and find the terrain you want to make (say Terr0001)
use this and there should now be four quadrants laid out of Terr0001. Now you can place your objects in and around the 4 quadrants.
from what I gather, the 4 quadrants are the subtile types in the posistion they can be placed at. you have to do this for terr0101, terr0201, and terr0301.
build and place in texsrc folder in TE.
also for hills and other terrain type objects - you have to have "terrain=1" in the ac3d file I believe.