There are a number of things that can potentially go wrong while working with fondant. I will address a few of the most common problems and offer suggestions as to how to solve them.
Step 1: Dry Fondant
Fondant can dry out or look dry for two reasons: 1. Fondant has been left out in the open air for a number of hours. 2. A lot of food coloring has been mixed into the fondant. This is easily solved by adding vegetable shortening to the fondant and mixing thoroughly. Start with a small amount and keep adding until you have a soft pliable piece of fondant again.
Step 2: Cracking
Cracking typically occurs when the fondant has been rolled too thin. When you try to work with it on the cake the thin part will start to pull apart and tear. If the crack is small like in the photo the easiest thing to do is either cover that part of the cake with a fondant decoration or turn the cracked side to the back! If the crack is large, you can mix a small amount (pea sized) of the same color fondant with a few drops of clear extract until you have a thinned mixture. You can then apply the mixture to the crack like spackle! You will be able to see where it has been patched but it will keep your fondant from falling off the cake if the crack is sizable.
Step 3: Air Bubbles
Air bubbles also often occur when you are smoothing fondant on a cake. These can be popped in the same way as when rolling the fondant by poking the bubble with a thin needle and releasing the air by gently pressing on the bubble with your fingers. I recommend going over the cake several times to make sure all air bubbles are eliminated. If you have a small air bubble that you don't see it can grow larger and blow out an entire side of a cake! I have had this happen and it's not fun. Especially after all the hard work you have put into making a cake. I like to poke a hole in the top of the cake that goes clear down to the cake base somewhere that will eventually be covered with a decoration. This will allow air to escape the cake through the path of least resistance.
Step 4: Cake Board Showing
As you practice and get better at working with fondant this will happen less and less. This is a result of cutting the fondant too close to the board and is easily solved. Roll out a color of fondant that coordinates with the design of the cake and cut a strip about 1/4 to 1/2 inch wide. Adhere it to the cake with extract around the base covering the showing cake board. Cut the excess fondant at the back of the cake and line up the seam.
Step 5: Lumpy Fondant
There are three main reasons fondant can look lumpy: 1. If buttercream is used to cover a cake instead of ganache it is much harder to smooth and often has a lumpy texture. 2. If your layer of ganache is too thin and as gravity settles your cake the buttercream filling can start to bulge the ganache between the cake layers. Definitely don't skimp on the ganache!! 3. Smoothing fondant with your hands make it more likely to get lumps.
Step 6: Dry Cake
Dry cake doesn't exactly have anything to do with working with fondant, however, I thought I would just mention this as it's a common problem in baking.
Cake can dry out from over baking and/or from being left out to the open air for too long. To remedy the dryness, you can make a simple syrup to drizzle on the leveled cake layers before you fill and stack them. This will moisten the cakes back to deliciousness! I would suggest two to three tablespoons of simple syrup per layer if your cake is super dry. Just make sure not to get the cakes too wet or filling and stacking will become difficult.\
I would recommend this simple syrup recipe - it's quick and easy! https://www.instructables.com/id/Microwave-Simple-Syrup/
Step 7: Other Problems
Decorations Falling Off — If you find that your fondant decorations are falling or sliding off the side of the cake this is usually a result of either using too much extract or not enough. If you get a ton of extract on a piece and try to stick it on the cake it can easily slide off. Try using as little as possible for the piece to stick. This can also be a result of the cake getting very hot and collecting condensation.
Condensation — Fondant does not love to be stored in the refrigerator. If you place a cake in the fridge and later remove the cake it tends to get shiny and slimy. This situation gets worse when the weather is hot and/or humid. If you touch the cake in this state you will fingerprint it like crazy! This is why I don't recommend using a perishable filling that needs refrigeration if you are also decorating the cake.