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Before you drape an image on to the terrain, make sure that the image is georeferenced and in the same projection as the terrain. Use the Map image on terrain command, which can be found in the Additional display folder. In the menu you will have to select which terrain the image should be draped on.
Displaying
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a vertically calibrated image
Vertically calibrated images can be displayed using the regular Display command, presuming the image is of the type Vertical Calibrated Image (look at the Type column in your project). Read more about how to vertically calibrate an image