I agree with Sean. I've done a bit of all of the above over the years. On my own huge New England-themed route, I use freelancing with manual sculpting and freelancing using real terrain, which I really like doing. Using TransDEM, (hint, hint), I took the DEM and put in tracks where none existed ever in and around Plaistow and Exeter. With this area, I switched the order of the topo-maps and terrain and blended things together. In real life, the area is separated by 20 miles, but when viewing the line, there's no way of knowing that except now because I said so. In real life, there is the existing B&M (Pan Am Rwys.) line and off of that I added some branch lines including a few abandoned lines with one of them becoming a rail trail. I also did the same around Amesbury and Newburyport where the former Eastern Railroad has been abandoned since the 1970s and 1980s. Here I put the track back in and I've merged in part of the terrain into my own route. Included in this area, is the former City Railroad that served the docks along the Merrimack River, and I freelanced a branch out to Plum Island. At one point there was a trolley line out there, but that's been gone since before the Great Depression. I put in a steam-road out there and had to work in a drawbridge over the Parker River just outside the island proper. The area today is covered with expensive oceanside cottages, but on my route, I will have a proper town, station, engine facilities, and residential areas.
I also did this on my reworked Gloucester Terminal when I added on the Eastern Point line. I ran the line along what is in reality state Rt. 127a and Eastern Point Blvd. I kept the existing town names, and created stations there and added in some switching opportunities such as docks and small industries. At the terminus in Eastern Point, I continued a short branch down to the waterfront to what was once the US Coast Guard Station area. In reality, the station has been gone for 45 years or more and I replaced that with docks and small fishing industries. The whole Gloucester Terminal, meaning GFisher's original and my electric version, are both built using this method. I owe it to George for inspiring me to do this with other routes.
On my own version of the same area in and around Cape Ann, I put in rail lines out to Magnolia through the Ravenswood Park. In reality it's a great swamp with walking trails and a few roads, but in my route I have a Ravenswood town with a bunch of houses, downtown, and a few industries. Magnolia has a small rusty branch that serves some docks and small industries and has a good sized passenger station with some storage sidings. The line runs up and around through Lanesville to Pigeon Cove and I added some short spurs to Thatcher Point, Wheeler Point, and Mill Creek. In real life, this area was covered with small disconnected quarry railroads and in my version I have connected some together to form a larger rail network all on its own. When I finally finish this route, in a gazillion years, it'll be a combination of freight, quarry, and passenger service.
As always, my intent while building this way is to keep the landscape and road network as intact as possible. This becomes a challenge as I work out where I can run the line without disrupting too much of the existing infrastructure. Working around the towns so not to disrupt things is tough, but it's even tougher figuring out how to work around the landscape without inflicting too much damage on the terrain while keeping the line realistic as possible.
This brings up the other thing I mentioned before. Keep the intent of the route in mind. By this I mean create a backstory that says what the line is, its industries served, and its purpose just as Sean has done. This helps keep the route on track, no pun intended, and makes building a lot easier and quicker than meandering along aimlessly without knowing where the end is or ever will be. Now related to this, I recommend working slowly and setting a goal of finishing up a few baseboards at a time. The reason for this is to allow time to clean up quirky bugs that creep into the building process, and also it allows you to enjoy the route as you build it even if it's only a few short baseboards that are completed.