Terrain Color Maps
From Blue Mars Developer Guidebook
In each layer of the terrain texture dialog there is the option to use a colormap (Load Texture button on the right). This is an overlay that fits over the whole map to provide color variation to the texture when you are far away. This texture should be fairly small and should not use a lossy format. There is a trick to creating a dds that will work. Just create a texture in PS with the basic colors you want, make it a little noisy, and then export it using the CryTif exporter. Make sure the preset is set to "CUSTOM", then the only option you care about in the exporter is under the "Advanced" tab. Simply unselect "Auto optimize file", then click generate output. You can actually cancel out of the exporter now as it has just generated a .dds for you. You'll now be able to use that .dds for your layer.