Adding a capsule collider is better then adding one that is a cylinder in most engines due to the fact that the end-caps on a capsule use the same radius as the radius of the body, so that the math is easy to compute collision by then engine. Adding a collider that is in the form of a cylinder makes the math much more intensive since the ends are flat, thus more expensive in processing time. If you are adding colliders to a large amount of assets in your scene then it is best to use capsules and not cylinders since the additive processor load is considerably greater for the cylinders and will tend to add to problems like lag.

The "create tree colliders" option doesn't work quite like that. Instead, you may want to add a capsule-collider manually by following these steps:

1. Find the tree you want in the Project panel.

2. Drag it out as a prefab onto your map. (It doesn't matter where, just so you can see it)

3. Select the tree, and in the Components menu, under Physics, add a capsule collider.(Losing the prefab is OK.)

4. Set the radius of the collider to between 0.8 and 1. Make sure the height is about 20.

5. Make a new prefab and call it Palm(Collider) and drag your new tree into it.

6. Under terrain tree painter add the tree called Palm(Collider).

7. Place a few trees, and you should be ready to go!

Press play, and the trees should now have colliders. If you want more trees and terrain textures, there is a great collection available for download here. Good luck!

The tree model should have a collider added, best is to add a cylinder-collider manually.