Create a new regular layer with a grass texture and paint it everywhere you want grass. Then push it up so it's hidden below the ground layer. Now select the alpha texture of the grass layer in the Texture Browser.
Open the TerrainInfo, go to the decolayers and use the texture as the Density map of your deco layer. Use your grass staticmesh as its StaticMesh (collision is off anyway). Go through the settings, most should be self-explanatory. If you need help, ask here. Things you need to check are:
make sure draw on terrain is on
make sure the fade out radius min and max is not 0
make sure density multiplier min and max are not 0
make sure max per quad is not 0
it'll probably look better if random yaw is non-zero (anything but zero means it's on)
Other than that, just experiment with the settings a bit.
To add or remove grass from your terrain you can "paint" the grass layer from before.