Here's what the TE Help file says:
"
Importing and Exporting BitmapsTerrain elevation bitmaps may be imported to and exported from the Aces High Terrain Editor. With the exported bitmap, you can use Paint to set the elevations for the terrain.
To export a terrain bitmap, click File->Export. Select or enter a filename for the exported bitmap, and select the maximum elevation. Click Okay, and the terrain will export to your ../HTC/aheditor folder with the .bmp filename you chose.
To import a bitmap, click File->Import. Select the bitmap you wish to import, select the maximum elevation, and click Okay."
Here's an example (reduced in size to 380x380 and converted to jpeg format) of what these bmp files look like. This file is for a 512x512 size terrain I use to experiment with.
The easiest way to get the correct format is to use the export function (above) then modify the graphic produced by that in whatever graphics application you have. Just remember to save your file at 1024x1024 size, in 24 bit colour. If your terrain is smaller than 512x512miles, use the export function to see the actual size of your terrain on the 1024x1024 graphic.
Cheers,