I cant belive that tehy have done it this way, because you would need a seperate file for everey little "terrain square". After that you have to deform your square to make a terrain grid with hills and that stuff. That would be possible I think but I've heard that you can only use 1024 different models, so max terrain size would be 32x32 without other models. In addition it will be very fps intensive.

Ps I've a small image from the C&C terrain for thoose of you who haven't played this game yet (it's funny, I can recommend it )