A terrain object is defined by an elevation (height) field and an image.
The elevation field encodes information as elevation y for a
specific 
coordinate. The image gives the color associated with
the coordinate. This information can be obtained from a digital elevation
model (DEM) and a satellite image of the terrain.
A terrain is a simply connected surface (i.e. no disjoint sections), so terrain rendering is a special case of volume rendering, sometimes described as 2.5-D rather than 3-D. This allows some optimizations to be used in the rendering process.
The terrain data set is stored as a number of two dimensional grids. Each grid contains a subsection of the terrain data set. The data is stored as triangular polygons made by triangulating the square mesh used as the basis of the DEM.