A map in ArmA is based on a regular grid network. Cell size can be freely set for every map but it's generally expected to be in range of meters or tens of meters. The engine uses automatically generated LOD system to draw the terrain more effeciently in larger distances.
Surface type is represented by two large textures placed over the entire map: satellite map for far away representation and look up mask refering to complex surface representation in close range (that includes multiple texture layers and optionally small ground clutter objects). See also Layered Terrain Surface Representation.
Objects and roads are represented and placed in similar way as in Operation Flashpoint. Main difference is that number of objects possible on one map is much higher thanks to the streaming technology or ArmA's new engine without long loading times or heavy memory requirements. So forest for example are no longer repesented by a simplified tricks but every individual tree or bush is located on the map.
Terrain editing is a great way to add content to BI games. Creating a new terrain can take several months, it will also involve a great deal of knowledge about addons and modelling. Don't let this discourage you, many great maps are available created by fans from all around the world.
For information on creating islands for the different BI games, choose the appropriate section below and/or visit the the tools section.