I am pretty happy with the erosion and its very good in a few certain ways but in general it's not the best out there. Theres some really good mountain erosion from WorldMachine - that one is particularly impressive in that department.

I was a little lazy with the raindrops thing. I added a little noise and upscaled it. I should have added it progressively as it upscaled so that it generated more even distribution of frequencies. If I had let it erode more then it would have made it look better but it would probably make the terrain more different to the backdrop its supposed to be sitting on so I didn't.

In terms of flooding I can see where your coming from. The terrain is supposed to be Karst (limestone) so that there is very little surface water on the upper hills and drainage is very good. The water flows through cave systems carving out large caverns until they collapse and then grass over so thats what its supposed to be. My app does not do any kind of rock type processing and definitely no cave collapsing stuff so I have to live with what it produces. So the look of the map is that of hard impermeable stone eroded away. I ran it with water for a while then turned up the permeability real high. Theres the odd area with some spots of water and this could be true to real but its not likely to be all that drinkable.

I think from an RPG point of view the villages would have a lack of water and would probably have to collect it. Its highly likely though that there would be a lot of springs all around the base of the hills. Some of the points on the map might be able to collect water but I think that its the major thing that would be different from usual villages.