It's all in the graphics for the tiles. Really study the editor with the grid turned on to see how they make the tiles fit together. Also note the blending tiles to change from sand to grass, or rock to dirt.

As for height, note that while playing the game you can never go behind any terrain. This means that the entire game is played on the one horizontal plane. It's the graphics that fools you into thinking that your units are actually on the top of that cliff. There may be some flags on those tiles to say the unit is higher than the one on the ground below it to give the higher unit an advantage in battle (elevated position = better position), but graphically it is all one plane.