First of all, if you are a complete beginner with Campath (P1), we highly advise you to have a look at the precedent tutorial which we created. It is very simple (it was its goal !), and it enable you to understand the basis of Campath and this tutorial.
The goal of this tutorial is not to find a nice method which will enable you to make a success of your animations every time (impossible you can believe me), but rather to give a general method which is, in our opinion, logical.
There are many programs that will convert DEMs into a format suitable for Terragen. This page describes how we use 3DEM to create my terrains from DEMs including joining multiple files together.