It looks like you've got things set up properly - you have the mesh selected, and the mesh tool active in the toolbox. I'm not sure how the background contour lines are drawn - are they an imported DWG placed as a Drawing in this view, or are they in a Trace Reference of a Worksheet that has the DWG placed as a Drawing, or is this a PDF, or...
As a quick test that bypasses the mechanics of working with the mesh tool, can you activate the Line tool and magic wand a contour line with lines? If so, then you should be able to do this with the mesh as above. If not, then you'll have to consider why the contour is not traceable by ArchiCAD. A PDF is not traceable, since it is just an image without snappable points. You can however manually trace over it, which is what I recommend doing in many cases since it gives you much more control over the level of detail.
Note that I will be covering the creation and management of terrain meshes in an upcoming section of the Best Practices Course.
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