It's a terrain height map imported into the terrain editor. I've been playing around with these things and have got 50+ examples now! I thought of writing a short tutorial about this - would anyone be interested?
All you need is an image editor (e.g. Photoshop) and use it to produce a greyscale image. For this one, I created a 256x256 image, then used the clouds filter to generate a terrain map, which was heavily blurred with Gaussian blur to make it a soft image with no hard edges. This is loaded into the terrain editor (click the 'Picture' button) and set the blend proportion to your satisfaction :-)
As I say, I can do a more detailed explanation if there's any interest. You can create all sorts of interesting terrains with this method. I've uploaded this map to my site if you want to play - http://www.microbion.co.uk/temp/gentle1.jpg

Steve