A "Population" is a set of instances - many copies - of a single object. These are useful for things like forests, grasslands, etc. In the Free version you can only have 3 populations, in other words 3 sets of 1 model copied many times. The number of copies of each model is not limited, only the number of total "Populations". You can use as many *single* (non-instanced) objects as you want.
Terragen does not have a 3D modeling function for creating things like houses, etc., but as others mentioned, you can load many available 3D models from elsewhere. 3D models can be just about anything, houses, plants, bridges, aircraft, animals, etc, etc.
Starting with the Free version is definitely the right approach, in my view. If you like working with it and the results you can achieve, then see which commercial version will fit your needs, i.e. allow you to do anything that you have felt limited in with the free version.
- Oshyan