It looks to me like this is just regular atmospheric scattering that happens at long distances with haze. I would guess that you are probably using really large scales here (the units in Terragen are meters most of the time), so these mountains might be huge and you have put your camera very far away from them to get the right look, which results in a lot of haze between the camera and the mountains. Since you already have the scene presumably the way you want it, you can just reduce Haze and Bluesky Density in the Atmosphere node, but in general I'd suggest trying to build your scenes at real world scales to have an easier time getting a realistic result.
- Oshyan
