Displacement Mapping with Blender By Anthony C. D'Agostino

The Input Mesh

There are three strict requirements for the input mesh:

1. it must be on the xy-plane
2. it's center must be located at the origin
3. it must be 2 units long by 2 units wide

The easiest way to satisfy these requirements is to make sure you are in Top View (Pad7), move the cursor to the origin (s|c), and add a default 32x32 grid object.  Subdivide it 3 times (or as many times as necessary to get the desired level of detail).

Ideally, the number of vertices in the mesh should be equal to the number of pixels in the image.  If the image resolution is 100x100, the mesh should have at least 10,000 vertices.  Keep in mind that the maximum number of vertices for a single mesh is 65,000, so using an image with a resolution of 1024x1024 will not yield better results than one with a resolution of 256x256.