This is more of a Unreal Engine/UDK question than a Terragen one, since Terragen does not export to a format that UDK supports natively. From a quick Google search, I found this which appears to support Terragen's .TER format as well as UDK formats:
http://www.lilchips.com/hmcs2.htmSo, to export from Terragen, you need to be using a Heightfield Generate. Once the heightfield is generated, right-click the heightfield node in the node network view and choose Save As, then specify a file name with .ter at the end. You should be able to load this into HMCS then export to a UDK-compatible format.
- Oshyan