Using prerendered shadows is best for an RTS. There are some problems using pre-rendered shadows with dynamic lighting where shadows don''t match the light source, ie, spell cast right over shadow and the shadow still persist. There are some hacks for this such as increasing blending on the shadow (may look ok if the shadow is small). As far as dynamic shading you get real-time shade meaning that shade is realistic, but takes more calculations, and arguably more work to implement, and (of course) is slower than using pre-rendered shadows. The gamble here is between visual quality and speed. For an rts it would be a better idea to use pre-rendered shadows due to the amount of units that may be visible at any point, is usually more than a typical FPS/RPG game where about only about 0-~10 shadows may be usually needed.

To implement terrain you will need to use a mesh whether to use tiles (like 2D games) or actual 3d height is your choice, I think War3 3D heights, but I cant say this for sure since I only played it once or twice a long time ago.

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Homepage: http://students.washington.edu/andrey