You are getting there. Select the upper surface and make sure texture is projected. Then open the terrain for editing select surface and sample/apply.
Once you have this projection process working you can work on the scale issues you may have. It looks like you attempted to scale the photo by eye looking down from above, unfortunatly you did this with the camera set to perspective, so the closer objects (the photo) are larger than those further away, so it may have looked correct but was not. If you want to set by eye this way change the camera to parallel projection. Or measure to be more precise.
As I suspected you have some raw geometry assigned to a layer here, and the active layer set to something other than layer 0. Best practice is to leave layer 0 active at all times (do not move the pencil), and only assign layers to groups and components, not loose geometry.