This usually happens when the game is running on an older PC. In Settings make sure Frame Skip is set to "On" and Lighting is set to "Retro". This should increase performance.
Download and install the following:
This should fix the problem.
If you're having issues downloading either XNA or .NET try to install the files manually via their websites:
The German (Steam) version of Terraria has currently lots of bugs and crashes (for example social slot items), the only fix is to set the language to English.
This can happen even on high-end systems, real cause is unknown but it can be fixed by limiting the FPS to 30. The Terraria Forums have a working fix for this that does things automatically.
Check to make sure you have the most recent updates to your graphics card. You can do this through Steam (in Windows) by pressing (in the top right corner) 'Steam' > 'Check for Video Driver Updates...'.
Also check to make sure you have the most recent version of DirectX.
Make sure your Firewall is off or that it allows Terraria Network Access. View this forum thread to get information on giving Terraria Network Access.
Look up port forwarding if you are trying to host behind a router.
If all else fails, you can use the third party program Hamachi. This allows you to more simply host a server without having to forward your ports.
Try launching again, and make sure you have set both Steam and Terraria.exe to launch as administrator (Windows Vista and Windows 7).
To force the game to update itself you must Verify the Integrity of your Game Cache:
This will make sure all of your game files are up to date and automatically replace any damaged files.
This is a temporary issue with the game which will get fixed, but until then, this is what you need to know:
Switching to Cloud takes the files off your computer, from %USERPROFILE%\Documents\My Games\Terraria\ Aside from your .plr player file which keeps character info, what we're interested in are the .map files. For various reasons what can happen is that the file that gets downloaded back either has one extra period before the extension, say 11111..map instead of 11111.map, or doesn't get downloaded at all. If it has extra periods, remove and keep the extension. If you don't see the extension then just remove all extra periods at the end of it.
If you don't have your map data files there, try looking in your Steam cloud temporary folder which can be found at <Steam-folder>\userdata\<user-id>\105600\remote It should be there. If it ain't there or in your My Documents location, get a file recovery software (i have had luck with Recuva) and point it in the Steam cloud temporary location. With luck it's recoverable. (this can happen when no valid files are present in the my docs location, so you cloud, local then cloud). If you have more than one set of files, go for the most recent set (the one with more periods or last modified date is latest) and remember that each is saved per world you character has visited.