Manual

Preparations

All the following assumes that you already have done:

Once you've installed the Terrain Tools, you will find them in Window => Terrain Tools in the Unity editor. You will probably want to dock that window somewhere.

Interface

To the right you can see what the interface looks like. Its individual sections can be collapsed if you don't need them. The topmost object field can be used to specify which terrain you want to work on, if you have several in your scene. If you leave this empty, the tool will automatically use the currently active terrain. So if you only have one terrain object in your scene, this field is optional.

Splatmaps

Precondition: You need to have set up textures for the terrain before applying the splatmap. 4 textures for 1 splatmap, 8 for 2 splatmaps. Additional textures can be set up, but won't be used by the script.

This is the easiest part. Simply drag your splat map(s) to the texture fields and hit the "Apply Splatmap(s)" button.

The image will be processed and terrain textures applied to the terrain according to the colours in the splatmap. Textures will automatically be blended and colour values normalized so you don't have any dark or overbright spots.

Splatmaps must be square, in a power-of-two size and imported as RGB24. They do not have to have the same resolution as the heightmap.

Trees

Precondition: You need to have set up at least 3 trees for the terrain.

The most configurable and powerful script.
First, you need to drag the tree distribution map to the "Tree map" selector. Again, power-of-two, etc.

Tree Density and Threshold control the amount of trees that will be placed. Density can not be above 1.0 which means every dot on your treemap will result in a tree being placed. The right value for this depends on your treemap, the size of your terrain and the scale of your trees. The default value works fine for FPS-size maps. Be careful with higher values, they can quickly create too many trees. Threshold is a kind of "sharpness" value. It determines how much colour your map requires at least for tree placement to happen. At high values, only the brightest spots in the treemap will have trees. At 0.0 you could have individual trees everywhere. The valid range is 0.0 to 1.0

Tree Size can be used to scale all trees up or down in order to fit them to your scene. Usually, the default value of 1.0 will work just fine.

Size Variation gives a bit of randomness and thus more realism to tree sizes. The default values work fine for most cases, if you want to play around with them, I suggest changing them +/- 0.1 at a time.

Grass and Bushes

Precondition: You need to have set up at least 6 grass textures or detail meshes.

This dialog takes two distribution maps. One for grass, the other for bushes. At least that is the idea, you can use them, mix them, in any way you like. Nothing says you can't have 2 grass textures and 4 bush types. The number is simply because of the RGB structure of your map images. The principle is the same as for tree maps — each colour stands for one type of grass texture or detail mesh, black means empty areas.

Grass Density and Bush/Detail Density are simple multipliers for the density of grass and bushes. Usually, you want grass to be dense while bushes are a bit more scattered about, which is what the default values accomplish.

Grass Clumping is a value that makes it less likely that you get isolated, single grass billboards, which usually looks awkward. It works as a chance that around any grass placed, there will also be other grass nearby, even if the grassmap does not mention it. The default value works fine for most cases, if you want to change it, valid values are between 0.0 and 1.0

Overlay Map (optional)

Precondition: Nothing

The overlay script allows you to add additional terrain textures to your map, again according to a distribution map. The most common case that you will probably use it for is to add roads, paths, rivers, lakes and other well-defined features. There is a lot you can do with this script. Since it is not always used, it is collapsed by default. Click the triangle in front of it to expand it.

First, you need to drag your overlay map into the slot provided. You also need to select a terrain texture and drag it into the Overlay Texture slot. This texture will be added to your terrain textures array with the tile size values you give here.

Threshold again allows you to cut out soft edges and ignore any low noise your map might have.

When you apply this script, it will add your selected overlay texture to the map according to the overlay map. That is, it will lay down a path or road according to the road map that you've provided. Not only is this simpler than drawing the road inside Unity, it also allows you freedom in the creation of the map image. You could use bezier curves, for example, or use varying width. You could even take it from an actual map if you are re-creating a real-world environment.
The script will also automatically blend the overlay texture with the existing splatmap and colour-correct the existing splatmap textures.

Clear Trees and Clear Grass will automatically remove trees and grass from the overlay parts, so that you don't have trees in the middle of your river or grass on your road. If your overlay map has soft edges, this removal will consider them, softly thinning out the grass around your path. Please note that removal of trees is very slow. It is often better to use an image manipulation program to simply substract the overlay map from the tree distribution map before applying that in the Trees script, which is why this option is by default disabled.

Finally Change Terrain is an incredibly powerful feature that will change the heightmap of the terrain as well. This enables you to use the Overlay Map script to actually carve rivers or lakes into your terrain (make sure they have soft edges!). Or you could use it to have a slightly elevated road, or maybe train tracks? The possibilities are endless. The value you put in here is in absolute measurement units, so it depends a lot on your terrain size, especially the Y value. Negative values cut into the terrain, positive values elevate it.