So, I'm going to stick my neck out and say that I'm not quite on board with this. It's not a bad idea, but I'm not sure it's optimal either. I'd have been more excited by a halfway house - penalties for occupying "bad" terrain - or, more difficult but still possible, being able to shift centres of occupation between hold and city. I'm not a fan of the idea that somehow Dwarves can't occupy flatlands - they don't *like* doing so but they certainly *can* do so. Likewise, humans are perfectly capable of occupying mountain regions, even if hold-cities themselves are less good. It's with the orcs and badlands that I actually have a gripe though - the Badlands are hill country, not mountains, they're massively unsuitable for Dwarves and perfectly reasonably suited to human settlement. There's no reason why the Empire shouldn't occupy such a reason and no reason why similar conditions shouldn't take hold in, say, Solland, or the Drakwald Forest, and other rougher-terrain parts of the Empire. I hope it makes for a good game mechanic, basically, because I don't feel it's justified on fluff grounds as well as they're making out.
Other thing I hadn't realised which is of major importance: we're getting a lot of minor factions, looks like this includes Border Princes, possibly Estalia and at least one Tilean faction. This I am very happy about. I'm not as convinced by the Empire being governed as a loose collective of elector counts, I think that understates the power of someone like Karl Franz as represented in the lore. Certainly if the Empire is loosely structured in that sense, the Dwarves should definitely be; the Lord of, say, Karak Izor (let alone Kraka-Drak) is surely significantly more independent than the Elector Count of Stirland.
