Terrain is basically used for non-manmade ground; things such as hills, deserts, and mountains. Unity's way of dealing with terrain is different than what most engines use in the fact that there are two mays to make terrains, one being using a height map and the other sculpting from scratch.
Height maps are a common way for game engines to support terrains. Rather than creating tools to build a terrain within the level, they use a piece of graphics software to create an image and then we can translate that image into a terrain using the grayscale colors provided to translate into different height levels, hence the name height map. The lighter in color the area is, the lower its height, so in this instance, black represents the terrain's lowest areas, whereas white represents the highest.
In order to apply a height map to a terrain object, inside an object's Terrain...