I want to be able to instantiate an object that can be placed on the ground that behaves basically like a blanket - if my ground is flat the object can be flat, if my ground his bumpy I want the object to be bumpy like the ground.
I don't know exactly how to do it. and perhaps there is no way, it doesn't really have to be an instantiated object, I guess I could use maybe some sort of particle emitter or something to outline the area of ground I want to designate.
but I thought maybe someone on here could give me some advice on how to do it. or what to do.
I thought of making a sphere collider and everywhere the sphere collides with the ground do something to designate that point. but I don't know. any one have any ideas?
or maybe I can change the way the terrain looks in game at a specific point I don't know.
You are thinking of decals (you'll have much better luck searching under this term than 'blankets' :-) ). They are typically used for scorch marks, bullet holes, and blob shadows.
Roughly, a decal is created by duplicating and chopping a section of a mesh (in your case, a terrain) applying your scorch-mark texture, and placing just above the original (or higher z-index.)
Here is a run-down and some math from a great book: Applying Decals to Arbitrary Surfaces
A few unity users have implemented decals themselves, and there are some extensions available. Also note that decals are being reviewed as a possible feature for an upcoming unity release.
Edit: A quick and dirty solution may be to use the projector in Unity, but has a performance cost if you create quite a few of them, and you may not get quite the effect you want...
unity 3.0 has cloth physics :)