Hi Gary,
The simplest way to do this is to use the Slab tool (as used in the Swimming Pool example that Doug referred to -
http://forums.turbofloorplan.com/index.php/topic,2085.0.html) as it will cut a vertical hole in the Terrain.
Insert a Slab in a flat part of the Terrain and set it's depth to what you want - eg if you want a 9" hole, set the Thickness of the Slab to -9" (Minus 9"). It will cut a hole in the Terrain with vertical sides 9" deep. (as in the square slab at the back of the image).
To get a vertical sided "Terrace" cut into the slope you can use either the Slab or Pathway as they work the same - set them NOT to Hug the Terrain. It does not matter what you set the Thickness to in this case, but it must be a positive figure (eg 1") - the depth is governed by your slope of course. The Slab or Path 'bottom' will sit at theTerrain level and cut vertical sides up to the height or your slope.
To get the sides of the hole in the same texture use the Landscape Fill tool. Just draw the Fill as a strip at the side of the hole so that it snaps to the edge of the hole or slightly over the edge of the hole but NOT RIGHT ACROSS it. If you go right across the Fill will cover the hole completely, so you need to have just a strip on each edge and if the edge of your fill goes over the edge of the hole it will 'fall into it' and put the texture on the inside edges of the hole.
In the image the forgound is a slab with a fill on the three edges to texture the vertical faces. The 'paved' one on the right is a Pathway without the vertical edges textured.
Hope that helps.
Allan