Draghunting has been going for a very long time - it uses foxhounds that have been bred to follow a drag, and is usually fast and furious and involves leaping giant obstacles. This is why I have never been draghunting - far too scary!
Trailhunting is essentially the same - foxhounds following a drag. However, trailhunting is just the preserve of ex-foxhunts. So their hounds have been bred to follow fox scent, and have been doing so all their lives (bar last year's puppies, of course). Trailhunting tries to mimic what happens with real foxhunting, so you get the trail doubling back to confuse the hounds, and going through trappy places, and there are much fewer giant obstacles! Much more fun, but less interesting than real foxhunting, as you don't get to see hounds really work to find and follow a scent as they do when following a fox's trail.
I'm not really sure what is used to make the drag, but it seems to vary between hunts. I think most trailhunts are trying to use fox-based ones, as that is what their hounds are used to. You can buy fox urine to use for this purpose, I think. I have also heard of hunts using human urine mixed with other stuff. I think it quite likely that dead foxes are also used to make scent, but these will either be roadkill or ones that the hunt have been called in by farmers to get rid of (ie shoot).
I'm sure other people will be able to add their knowledge to this, and probably correct me in certain places as well!