Terraforming is a way of transforming land to make it more hospitable for construction of Buildings. Terraform land around your settlement to enable construction of larger buildings. Pave Roads to speed up the movement of your villagers and thus improve the economy of your settlement.
Terraforming is labor intensive. It is done by builders, and you can put many builders to work (beyond the # of builders said to be needed.) The more builders, the faster terraforming goes.