For that kind of "external" shadows - I would rather use them as objects (not walls) and with let's say 70-80% transparency to leave some terrain details below them. Somebody was saying about making objects like tree and it's shadow together - I don't know - in this case the terrain should be completely flat and even, also the tree could not be turned (since all shadows always have the same direction). So - shadows as another objects.
To get semi-transparent picture - the texture should be saved as dds DTX5 (interpolated alpha).
To make semi-transparent texture - go to the alpha channel (in Photoshop) and adjust Levels that the white part of alpha channel gets more or less gray. I don't know the best setting - you need to experiment to get results you like the best.
Just to memorize - 1 bit alpha in DTX 1 for transparency works not the best - it gives rough edges. This maybe could only be suitable if you had straight egdes (let's say - "empty" windows in a wall of a building) - DTX 3 is much better.
I have no idea why some DTX 1 textures (without transparency) have added the 1 bit alpha - it seems to do nothing, but the files are bigger. I saw this also in original textures from RBR - maybe they used something that needed this. But for BTB I don't see any use of it.
So, I know that DTX 1 gives smallest files, DTX 3 and 5 are bigger. The alfa channel makes all of them bigger. Also - the file size depends on how many mipmaps you save - the more - the bigger is the file. I thing saving "all" (which is 11 or 13 - depending on the graphic program) is a waste.
Anyway, please enlighten me - I would like to know if I'm wrong