That's all good advice from Richard. Just a couple of things to clarify.
Terragen is based on meters for units, so if your modeling application is not working in meters, you'll need to convert, either before export, or after import into Terragen.
Poseray is helpful, but it's not doing anything special *for* Terragen in regards to OBJ format. Rather, Poseray conforms more closely to the OBJ standard itself, and is more flexible in terms of what it will accept for *import* and the tools it provides to convert to a more standards-conforming OBJ output.
And lastly, I think when he said ".mat" he meant ".mtl", which is a "sidecar" file that needs to be included with a .obj for the texture files to be referenced and loaded properly by Terragen (again, a part of the OBJ standard, but many applications do not generate it properly upon export). .mtl files can be opened in a standard text editor, and that's how you would verify that the appropriate texture file paths are there.
- Oshyan