Valheim: Terrain - how to level? Valheim guide, walkthrough

From this page of the Valheim game guide, you will learn how to level terrain.

In order to construct a building, the terrain must be reasonably leveled. Meadows aside, suitably flat ground is difficult to come across. For this reason, instead of running around looking for a convenient spot, it's a better idea to level the terrain yourself.

Any type of pickaxe can serve a primary role in terraforming the land. By hitting the ground with a pickaxe, you can lower the terrain by a certain amount. However, this amount is not fixed and depends on the height of the adjacent area. You will need to be careful, though. If you dig until you hit the bottom limit and continue to expand the pit, the game might reset the state of the surrounding area and restore its original form. Therefore, you should avoid interfering with the surrounding terrain.

The game will reset these types of holes.

The makeshift area for your base which you create using your pickaxe won't be entirely flat. A hoe is needed to level it. To do this, simply point at the location and confirm your selection. In addition, this tool will also allow you to raise terrain. Unfortunately, this feature isn't especially useful, as it costs a surprising amount of stone.