I just got something working that really improves how well the game runs. Basically, I am now splitting the terrain into a bunch of tiny pieces and only drawing the pieces that are visible.
In technical terms, this cuts the number of polygons rendered from 250,000 from the previous version to an average of a much more desirable 50,000 to 75,000 now.
In short, the more polygons (3d elements that make up the map's shape) are being drawn, the more work your video card has to do and the worse the performance will be. The "view Distance" setting in the game's options will also affect this now, by not drawing any pieces of the terrain beyond this view distance.
One the game is more complete and the landscapes are vast, lower-end computers will be able to cut down the view distance to hugely speed things up and higher-end computers can leave the view distance up while still getting good performance (by cutting out excess polygons behind and beside you).
Another big benefit is that I'm able to cut down on the computing (CPU) power necessary to calculate collisions between your player and the ground, because the "ground" object is smaller and less complex: I only need to check the piece of the terrain that the player is dealing with, rather than the entire map.
I know this is a lot of technical blahblahblah, but this is an important step for making our game playable in the future, once we have big, giant landscapes. So far, so good!

66948 polygons in this scene and I'd say it looks pretty good. I'll work on getting it even better but this is definitely workable!

There is still the problem that the game eats up a lot of RAM. I can't seem to get it below 250MB of RAM at the moment, unless I completely kill the texture resolution. I will set up a Quality option for textures, using the following system:
Low quality: 256x256 textures
Medium Quality: 512x512 textures
High Quality: 1024x1024 textures (as seen in the screenshot. May remove this option as it seems to be a bit slow).
512x512 looks almost as good as 1024x1024 and eats up half the RAM so I might remove the 1024x1024 option completely, since 1024 is so bloody slow. Either way, I will include the low-quality option for lower-memory computers.
512x512 is using 250MB of RAM total.
1024x1024 is using 500MB of RAM total.
I am about to experiment to see what 256x256 uses.