to make a terrain click on the terrain tab > create terrain. In the inspector it will come up with a load of buttons and functions like adding grass and making slopes and mountains. I don't think you can use a plain to create a terrain and you can't use the built-in terrain editor tools to edit it like giving it grass, slopes etc.
You are right character creation is not really related to terrains but to make realistic characters I tend to make them in an external modeling program which you can get very easily for free. I personally use blender which I found relatively easy to learn the basics of