Caution: only tested with
MSFS 2002 and 2004
 

TERRAIN_MAX_VERTEX example
For this test I created a new mesh file - from 30m source data at LOD 12. In this new terrain, I created 2 ridges, using only one row of data for each; 400 feet on right, 600 feet on left, ground level is about 325 feet. I then took screenshots with the fs2002.cfg TERRAIN_MAX_VERTEX_LEVEL settings at 21, 20, and 19 (default).

TERRAIN_MAX_VERTEX_LEVEL=21
An artifact has been introduced in both ridges (shallow slope at top, before falling off to the right). The 400 foot ridge is much sharper here.
 
TERRAIN_MAX_VERTEX_LEVEL=20
The artifacts are gone, but the 400 foot ridge is not as sharp.
 
TERRAIN_MAX_VERTEX_LEVEL=19 (default setting)
The ridges are gone! Don't expect much ruggedness if you use this setting. Not all of the data in high resolution mesh BGL files will be used.
 

Conclusion:

Truly rugged terrain requires higher resolution mesh files than those provided for most of the areas in Flight Simulator. It also require modification of the cfg setting, or you will not see all of the additional detail. (Of course, there is a cost in performance.) You may want to test this setting in the Grand Canyon area, where even the default mesh seems to be of higher resolution.

Notes:

This data was only 30 meter source resolution, at LOD12 (9.6 meter). This oversampling may explain the artifact, but was necessary for the small test area used.

This SDK says the sim can support resolutions up to 1.2 meters! I do not think current hardware can, but when data and hardware become available...