What is the best method to simulate height for a top-down tiled 2D game? One way I thought was to make tiles which are supposed to be higher brighter, but I was wondering if there was a standard or better implementation.
First of all and to clarify, do you require it to be completely top-down or do you consider something like this as being top-down too. In that example you can tell that the house is much taller than the barrel simply by the amount of tiles that they both span vertically. Also, allowing the character to move behind the objects is another good way to let the player realize how tall something is.
If on the other hand you really mean a pure top-down view of the world, you could try your own suggestion of giving different brightness values depending on the tile's height. Give it a try since it should be pretty easy to implement, and see if the results are satisfactory enough.
But if you wanted to give a stronger impression, perhaps you could add shadows too. Pick an arbitrary light direction and have your tiles cast a shadow on tiles below their respective heights. This way taller tiles would cast longer shadows than lower tiles, and give the player an additional visual cue of the height of each tile. It should be much harder to implement though.