Older games such as the early Ultimas had one tile for each type of terrain. Here's a screenshot of Ultima IV:
The look of the terrain improves dramatically if we add transitions from one type of terrain to another. Here's Ultima V:
Adding transitions can greatly increase the number of tiles required.
Here is a simple terrain consisting of two types of locations: ground and water. As in Ultima IV, there is one tile for each terrain type; the white lines indicate the boundaries of the tile bitmaps.
To add artistic transitions, a natural progression from the Ultima IV-style tiles is to turn the ground tile into a set of ground tiles and the water tile into a set of water tiles. Each tile in a set corresponds to a different configuration of neighbor terrain types. This solution looks something like this:
The terrain types are effectively defined at the centers of the tiles. This is not a good solution; it creates a combinatorial explosion because the tile's appearance is affected by nine different grid locations.
It is much better to define terrain types at the corners of the tiles:
Now each tile is defined by only four grid locations.
I got a comment about how foreground tiles should be aligned relative to the background tiles. The commenter is exactly right; foreground tiles are generally centered on the background tiles' corners. Here's an example with programmer art by me (except for the character which is from Zelda: Minish Cap):
The road, forest, and castle tiles are all offset so they are centered on the corners of the background tiles.