This is due to how close you are to the terrain. The setting Yossam suggests changing is adjusting the clipping plane.
Terragen works with incredibly large scales and there is a limit to the total number of values that can be represented by typical graphics hardware, so you can either have very large distances with poor accuracy, smaller distances with great accuracy, or some kind of curve, with greater accuracy in the foreground. Even still, there are limits, and so clipping planes describe the closest and furthest distances that will be represented by the system, beyond which they are "clipped", and thus don't have to take up space in the coordinate system, essentially. Moving the clipping plane lets you adjust the bias, near or far, for the numerical range being represented. It is set by default at a range that works for most scenes, but as you have seen in this case, it does sometimes need to be adjusted. It is fortunately a rarity, however, which is why it's not a permanent setting.
- Oshyan