Just press the green flag, and it will generate islands. Fullscreen recommended, it doesn't make much of a difference on performance.
This may work very slowly on old computers. The algorithm it uses is rather processor-intensive, being a cellular automaton with over 8,000 cells. I have used numerous methods to speed it up, but it is slow by nature. I am working on a civilization simulator (not in scratch, sorry), and I was experimenting around with terrain generation methods that I could use. This one is a cellular automaton (ex. Conway's game of life) and the rules are as follows. Each cell starts out as an ocean cell. if an ocean cell has 8 neighbors that are ocean cells, it has a 32% chance of becoming a coast cell. If an ocean cell has 5 neighbors that are coast cells, it becomes a coast cell. if a coast cell has 8 neighbors that are coast cells, it becomes a beach cell. If a coast cell has 5 neighbors that are beach cells, it becomes a beach cell. if a beach cell has 8 neighbors that are beach cells, it becomes a land cell. If a beach cell has 5 neighbors that are land cells, it becomes a land cell.