To give you an example to further explain what I said, let's say you create a basic Lake object. In the Node Network View you will see a Water Shader 01 connected to its input. On the top of the Water Shader is another input. Right-click in the network, go to Create Shader->Surface Shader->Power fractal shader v3. Now connect the output of this shader to the input port on the top of the Water Shader. You should see your water surface turn partially white - the Power Fractal is now providing color as well as displacement, although the displacement is very small right now. Next open the settings of the Power Fractal (double-click the node in the node network). On the Scale tab change Feature Scale to around 1000 and Lead-in scale to around 10,000. On the Color tab uncheck Apply High Color (unless you want to color your water - for now we should have it off though). On the Displacement tab set Displacement Amplitude to around 500. You should now see really big waves! Because you're using a lake object you may also see the terrain underneath showing through where the water level dips down below the planet surface, but this could be fixed by either using Water Shader on the planet itself, or by simply raising the lake level, or adjusting amplitude, etc.
The important thing is the fundamental principle: you can plug any shader into the Water Shader input and it can affect the water. If you put a Default Shader on there you can easily change the water's color, for example. Any shader that provides displacement - a Power Fractal, Default Shader (with an input in its Dispalcement port), or a Displacement Shader can all do this, as can a Heightfield Shader. Yes, in fact you can create water shape with heightfields, so you could even go into a paint program, paint your water shape, and then use that on your water in TG2, possibly combining it with a smaller-scale built-in fractal for smaller-scale detail and greater realism. The possibilities are almost endless.
I recommend you simply experiment with the basic shaders available in the Shading and Terrain layouts and using those nodes connected to the Water Shader to see how well they work. Basically anything that can create terrain can also effect water shape. Water is essentially just another surface type in TG2...
Let me know if you need further explanation of any particular point.
- Oshyan