Follow these instructions:
First place your "AM" image in the Terragen directory.
Then Launch Terragen.
you should see the default flat terrain in the 3d preview window on the right.
Now click the "Add Terrain" button, and select > Displacement Shader > Image Map Shader.
an Open File dialog box pops up,
find and select your "AM" image and click the Open button.
The image should now be loaded into the Image Map Shader.
Where it says Projection Type click the down arrow on the drop down selection box and select "Plan Y (edges=xz)".
Now where it says Size, enter 5000 in each of the two boxes.
Click on the Flip Repeat tab and check all Flip and Repeat boxes.
Click on the Displacement tab and check the Apply Displacement box, then enter 100 where it says Displacement Amplitude.
You should now see the globally displaced terrain in the 3d preview window.
A tgd file is the file created when you save your Terragen scene.
To open a tgd file you click on File > Open and select the tgd file in the Terragen directory (I'm assuming that's where you keep your tgd files).
John