If one or more area features are selected with the Digitizer tool this tool can generate a elevation grid inside of the area feature based on the elevation defined in an attribute, or per vertex elevations. This will create a small planar terrain grid that can be merged with other terrain data by placing it on top and then exporting to a terrain format from the top level file menu.
To access this option, select the area(s) with the digitizer, then right-click or go to the Digitizer top level menu and under Advanced Feature Creation Options select Create/Flatten Terrain from Selected Area Feature(s).
Selecting this option will allow you to create a new elevation grid using
Elevation Grid Creation Options dialog, covering the selected area
features that has all points within the selected area feature(s) set to
the elevation of those area features.
Any portions of the new elevation grid outside of the area features will be set to invalid, allowing any underlying terrain to show through. If you also select the option that elevations are relative to the height of any underlying terrain, the new terrain surface will have heights equal to the original height of the terrain at each sample location within the area offset by the elevation value of the area feature. This functionality is useful for adjusting all elevation values within an area by some amount (the area elevation).
This feature provides a very easy way to do things like flatten an area, like a lake, in underlying terrain layers. Just assign an ELEVATION attribute to your area feature, then select it and choose this option to flatten everything inside that area to the elevation attribute value. This is also a nice way to create an elevation grid representing a city-scape from building outlines with ELEVATION attributes.