If your route has DEM terrain imported, the generate distant terrain button will make lower resolution 'backdrop' terrain of it at distances greater than what the TS engine would normally draw it at. The distant terrain will also be textured to the terrain colour that the ground is painted there, so terrain features like snow capped mountains can be created.
The example pictures below show the dramatic difference this made on my route. In the first picture, the hills on 'the horizon' are at a distance of about 3 miles. Even though there is terrain generated beyond that, the TS engine (in combination with my route's fog settings) doesn't draw it.
Gazelle S Curve.jpg
The second picture is after I used the 'generate distant terrain' feature. Now, Mt Shasta which is 17 miles distant is drawn.
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With this distant terrain imported, you can change your fog settings to take advantage of this increased viewing. The picture below shows the ad hoc terrain paint that I put on Mt Shasta being displayed. This is at a distance of 12 miles, and beyond the distance that this would normally be drawn. Note, the distant terrain will be coloured exactly as the ground at that point is textured at the time that you generate the distant terrain. ie: if you retexture any distant ground, you will need to go through the 'generate distant terrain' process again to add the changes to your route.
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Important things to note:
You must have the low res (1 or 3 arc second) .hgt files inside your Railworks/DEM/SRTM folder for all of the terrain areas you are generating.
You have to be positioned within the 0,0 tile of your route at the time you press the 'generate distant terrain' button
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