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Clipping distances work on atmospheres, clouds and ray-traced objects. At the moment they don't work with the rasteriser, the render method used to render displaced surfaces such as terrain. However, you can make it work for everything by enabling "Ray trace everything" on the Advanced tab of the renderer. This tells Terragen to use the ray tracer for surfaces that would normally be rendered with the rasteriser. One of the drawbacks to this is that you need to click on the Subdiv Settings button and change "Ray detail multiplier" to 1, otherwise your terrain will be rendered at a lower detail level (larger micropolygons).
Usually "Ray trace everything" will take longer to render (highly dependent on Anti-aliasing levels), but in some scenes it can work out to be quicker, especially in more recent Terragen builds.