DecoLayers
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This tutorial explains how to create a DecoLayer for your terrain. It assumes you've already created your basic terrain.
Select the Static Mesh you want to use for your decolayer.
In the Terrain Editing Dialog, click "New" in the Decorations tab.
Right-click on the new DecoLayer and click "Set Static Mesh from Current."
Switch to the Layers tab.
Select any texture in the Texture Browser (preferably one without a mask or alpha) which has the same scale as your terrain (that is, if your terrain is 128x128 quads, it's okay to pick a texture that's 256x256, but not 128x512).
Create a new texture layer, set the AlphaFill to black, and (as you should do with all terrainlayers) save it in the myLevel package.
Select your new Texture Layer and move it to the top of the stack.
In the textures browser, open MyLevel and select the newly created RGBA8 texture that corresponds with your new layer. It will have the same name.
In the Terrain Editing dialog, in the decorations tab, right-click on the decolayer and click "Set Density Texture from Current."
Open the properties of your TerrainInfo. Expand TerrainInfo, then expand DecoLayers. Expand the layer that you've just created (probably [0]) and set the FadeoutRadius appropriately.
A max of 4096 and a min of 1024 are average, but the values will vary based on how far you can see on your terrain (you don't have to make them powers of two).At this point, you can delete your texture layer (not the texture, just the layer in the Terrain dialog).
To paint your decolayer on your terrain, select the Layer you created in the Layers tab to correspond to your DecoLayer. Select the painting tool, and you're set. Note that they won't paint exactly where you want them to. There's a limit to how many SMs you can place per quad (one by default) and it's pretty hard to "arrange" them.
There are other properties in the TerrainInfo's Properties>>TerrainInfo>>DecoLayers that you might want to take a look at to achieve a more realistic look.
Note that, to save filesize, you may want to use the same texture for a terrain texture as you do for a decolayer: for example, you may want to use a grass texture everywhere you have a grass decolayer.
The major restrictions of Decolayers is that they do not have collision and their placement is random. This means that you cannot place a deco-object in a specific location. If you don't like where the deco-objects are being placed by the engine, you can "seed" the random-integer counter in the TerrainInfo's DecoLayers property set.