One way of visualising this is imagine you are using a PF to generate land on a planet, the Lead-in acts as the continent size, the Feature Scale the size of the coves and land spits, and the Smallest Scale is how much definition there is along the coast line.
You can click the blue screen icon in the PF to see an XZ projection of the noise on a flat surface at Y=0 in the preview window that appears. Noise in Terragen is inherently 3D (some nodes are 4D) which means the noise changes through Y. To see that, add a Transform Input shader to a PF, click on the blue preview icon and add an offset in the Y position, you will see the noise change shape as you shift it through Y.