Just like gandy says, you can use it with any tipe of terrain addon. FS Altitude only works at a certain distance from your aircraft. This means your plane is at the center of a circle of "x" radius. Inside this circle you won´t ever see FS Altitude textures, only the photoscenery/whatever terrain you have for the area (or default terrain if you have nothing). This circle always has the same radius and stays in the ground, so the higher you go, the smaller it becomes and the more you see of FS Altitude.
Once you are at FL30 and similar, you really need to contort your head out of the cockpit to see the circle down there without FS Altitude (or just go to external view and see directly down) so it works really well for those flights, the effect is very convincing (even more if you use weather).
Once you start to descend the "void zone" circle obviously gets bigger the lower you go, showing whatever terrain you use for the area you are in. With the old megascenery earth based on tiles you could get only those tiles near the airports and let FS Altitude take care of the cruise (and it was not coincidence that those airports usually rested in the conjunction of 4 tiles ).
For flying low and slow it´s better to disable FS Altitude altogether (one entry in the scenery library for each product). Mountains outside the "void zone" will show FS Altitude textures, noticeable even standing on the ground. But it´s just two clicks to enable/disable it.
For me it´s the perfect photoscenry for high altitude flying, one DVD for Europe, two for USA (plus caribbean) and another for Australia. Try covering an entire continent with normal photoscenery... :wacko: