Neither correspond to any particular real world layer.

In reality the atmosphere does not stop at any altitude. It continues to get thinner the higher you go, but some molecules exist hundreds of kilometres up. But Terragen wants to set a limit on how high it calculates the atmosphere. No atmosphere is rendered above the “Ceiling” altitude. Sometimes in views from space you might notice a sharp line caused by this, in which case you can increase the ceiling altitude until it become imperceptible. This has the side effect of changing the distance between ray-marching samples, increasing noise, but you can compensate by increasing the number of samples on the Quality tab.

Within the atmosphere, the relationship between altitude and density is modeled by an exponential falloff. “Exp height” parameters affect the rate of this falloff. If the “exp height” is 8000, this says that at 8000 metres above sea level the density is reduced to 37% of what it is at sea level. And every additional 8000 metres causes a further reduction by the same factor, so at 16000 metres you have 37% x 37% = 14%.

(This ‘magic number’ of 37% comes from 1/e ~= 0.37)