Hi,
The displacement settings don't make the shape shader sit on the terrain. They displace the terrain.
Use the shape shader in colour mode to control a population. I've attached a screenshot showing a shape shader set to a circle to control a population, which you can see in the preview. The shape shader is connected to the population's Density shader param.
The shape shader basically applies its effect as if it were projected on to the XZ plane, or in other words "top down" or in plan view. The Y coordinate in the position param doesn't really do anything.
Regards,
Jo