Photoshop :: Creating Terrain Grayscale Image From Height Field Contours

The starting point:
I have a JPG image of a battlefield wherein the height contours in feet are marked as faint lines (like a closed contour line for 390 feet, another for 420 feet, etc etc.)

The desired final product in Photoshop:
A grayscale RAW document that shows the height variations in gray tones.
Low lying troughs need to be darker and higher elevations need to be lighter.
See picture below for example:

I am ignoring the roads and other features in the battlefield.
All I am interested is the technique of converting the height contours into a smoothly varying grayscale image.

I am a complete Neanderthal when it comes to Photoshop. I do have a copy of Adobe Photoshop CS3 on my PC.
I have been toying around with the package on and off. But nothing useful has come out yet.

Now to my specific questions

*How do I bring in the height contours into Photoshop? I have tried the magnetic lasso tool and able to trace a height contour with good fidelity.
I am kind of stuck at this point. Do I save the selection to a new layer? Do I thus create one layer for each of the height contours?
Say one layer for the all the 390 feet contours, another layer for the 420 feet contours, one more for the 360 feet contours etc etc?

*Assume that I have somehow brought in all the height contours successfully into a new Photoshop document.
How do I create a gradient effect between the contours?
The lowest height in the map is 300 feet and the highest areas are at 480 feet.
Thus the area enclosed by the 300 feet contour lines needs to be darkest (pitch black) and the area enclosed by the 480 feet contour lines needs to be lightest (pure white).
The areas in between need to go progressively from dark to light shade.
How do I achieve this?

*Assume that I have created now a PSD document that has these smoothly varying grayscales. How do I convert this to a RAW image?