I made this cake for my boyfriend's 20th birthday. I didn't come up with this idea until the day before, so it was rushed. If I had started earlier, I probably could have done a much better job (no sloppy fondant work, that's for sure). He liked it, though, so I was happy.
First, I baked the cake layers, cooled them, stacked them (stacked the layers into tiers, that is - not stacked the three tiers on top of one another), then dirty iced them.
While baking the cake and waiting for them to cool, I went ahead and made all of my fondant. I make my own fondant (as opposed to store-bought fondant) out of marshmallows, powdered sugar, and water. This is much less expensive (and tastes better) than the store-bought kind. It took a few batches of marshmallow fondant to cover all three tiers.
I also made all of the decorations that you see on the cake out of fondant and gum paste. I colored small lumps with all of the colors I would need, rolled them out, and cut out the shapes I wanted (I free-handed all of the shapes, so they're nowhere near perfect). Then, I let them dry (so they would harden - this doesn't take too long, depending on how thin you rolled it out) and then piped on additional details with royal icing. I made the star topper the same way, only since it was free standing (as opposed to being stuck on the side of the cake), I cut out two stars, laid a sucker stick between them, and glued them together with water.
I covered the bottom two tiers (always cover each tier separately before stacking the tiers on top of one another) in white fondant, and then airbrushed blue food coloring onto it. For the top tier, I colored the fondant (with food color gel) prior to rolling it out and covering. Once the tiers are covered, you can stack them. (see note)
Now you can apply the decorations. Once the decorations harden, simply brush the backs of them with a bit of water, the gently press it against the fondant and hold for a few seconds. The water makes the fondant sticky again, so the decorations will stay in place. Then, you can put your topper on by pushing the sucker stick into the cake.
I know this cake is nowhere near perfect, but it's the thought that counts, right?
Dirty Ice: Also called a "crumb coat;" to cover cake in a layer of frosting that will act as a glue when covered in fondant.
Fondant: A sugar dough that can be kneaded, rolled, colored, and cut; used to cover cake layers for a smooth finish.
Gum Paste: Similar to fondant, gum paste is like a sugar play-doh; it dries extremely hard and lasts forever, so is perfect for modeling decorations.
Piping: Applying a cord of icing. This is done by filling a pastry bag (or ziploc bag) with the icing, sealing the top of the bag, and snipping off the tip (or corner), forming a small hole through which the icing will be squeezed. You can choose how big or small you want your piping to be by the size of the hole you cut. Piping is good for thin, precise details like lettering.
Royal Icing: An icing that dries very hard. This is good for intricacies that you don't want sliding off or melting.
NOTE: To reduce unnecessary confusion (since I do not have pictures to go with it), I did not go through the details of stacking your tiers in this instructable - in order to maintain structural integrity of the cake, it is extremely important that such steps be taken. So, if you are going to attempt something like this, please ask me and I would be more than happy to relay the proper stacking procedures.