I used a Power Fractal shader to create the rock texture. Its high and low colour parameters are set to a couple shades of brown. In my example image, it's assigned to the Colour function parameter of the Default shader, and the node has been named Power fractal COLOUR.
When Terragen renders a sampled point of the rock surface, it multiplies the values of the Default shader's Base Colour, the Colour Image, and the Colour function to get the final colour value. For example, if the Base colour was red (1,0,0 in decimal form) and the Colour image was completely green (0,1,0 in decimal form) and the Colour funtion was blue (0,0,1 in decimal form) the final colour value would be black (0,0,0 in decimal form) because as each colour channel (RGB) is multiplied by 0 the results become 0 or black.
Perhaps that's the long way of saying that all three colour parameters play a roll in the final colour of the rock.
In your latest example image the Base Colour is white (1,1,1 in decimal form), the Colour image is assigned a PNG, and the Colour function parameter is empty (so it will be ignored and not contribute). When these values are multiplied together you'll end up with the values of the PNG file. If you were to reduce the value of the Base colour, say to 0.5, then the final colour of the rock would be darker. If you changed the value of the Base colour to redish-grey, such as 1, 0.5, 0.5 in decimal form, you would get a darker and redder looking rock.
All together, these three parameters provide you with a lot of flexibility when it comes to surfacing or modifying textures.
