You want to first go to Estate tools and DOWNLOAD your RAW file for the sim. This takes a few minutes as it is a big file.
Make a backup of this file. So that you can go back if you mess things up real bad.
You can open and edit this file in Photoshop but like they said above, this is not for the faint of the heart as you have to go over and edit only the red channel blah blah blah details details details....
Start here... this is almost a beginner's guide to island Raw files. It also lists several third party terrain editor applications you can download and use for free:
Nowhere but here...: Second Life Terraforming Tools
Look at this url for full directions for editing in Photoshop (this is technical)
Second Life Inworld Help
Also Look at this Fabulous Page with explanations of everything that's on the Estate Tools window:
Second Life Inworld Help
Finally, when you're done editing, upload the new RAW file directly into the Estate Tools window using the Upload button. REMEMBER, the upload takes 2-5 minutes. Do not quit
SL and/or despair until right in front of your eyes your island redraws itself to reflect the new RAW terrain file.
Patience patience patience.
Feel free to experiment and have fun with it.
Remember you want to do this before you start building on your island. So do all the experimentation you need to do... now when it's practical. If you try to do this after your buildings are on the island you may encounter weird problems like things being burried or shifted so that they're not burried etc....
Hope this helps,