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Land in Second Life is much the same as it is in the real world, reaching to all ends of the world. Land is also sometimes called "ground" or "terrain". Land can be edited (or "terraformed") in many ways: flattened, smoothed, raised, roughened, etc.
No place in SL can be without land (or water)--even estates must have land (although it can be lowered very deeply beneath the water). However, estate owners can modify their land using RAW height maps (or "heightfields").
Holes (through the terrain), caves, tunnels, etc can not be done with SL's current land. Land in SL is not all hosted on one server, rather, each server may host four or five individual sims. The world is split into a grid-like pattern, with each square of the grid representing a sim, and each sim hosts that square of land. If a sim crashes it will result in the land for that square being absent.
Land can be broken up into parcels (or the less commonly used term plots or property), which can then be owned by multiple residents. Only one resident or group can own a parcel of land at a time. Parcels can also be sold by other residents, allowing for a large "land market" that has developed. Parcels can be shown (as red outlines) via View > Property Lines (Ctrl+Alt+Shift+P).