Hi there,
You can do either. The two devices you’re looking for inside World Machine are the File Input device, which lets you import both heights and images into WM, and the Layout Generator, which lets you sketch shapes to control your world.
There are several example worlds included with WM showing how to do this; in “Open Examples”, take a look at the file Techniques->Creating Larger Worlds->Coastal Mountains showing how to sketch the locations of hills and mountains.