Displacement Mapping with Blender By Anthony C. D'Agostino

The Grayscale Image

You can create your own custom image using a paint program, download one from the web, or use a special purpose utility.  Just make sure it's a grayscale image that is in a format that Blender can read.

An excellent utility for creating the input image is gforge v1.3a, by John Beale.  It has the advantage of creating very realistic terrains for use with planar mapping. It also creates a seamless image, which is important if you plan to make a tiling mesh with linked duplicates.