Start with rolled fondant, but don't roll it out too much because you will be rolling it out later. Next cut out your favourite shapes, colours and add on top of the fondant. I made the mistake of working too slow and in the next picture you will see some of the pieces shifting (due to the fondant drying up). So in order to avoid that, make sure you had some shortening or water ( use very little, dry brush).

Roll out the fondant and stop when you have the desired thickness of the fondant. Use a cookie cutter that is slightly larger than the cupcake make. If you guys haven't seen my tutorial of the covered fondant. Click here Fondant Cupcake Tutorial and you'll have step by step instruction on covering cupcakes with fondant.

Forgot to mention that when you make your cuts try to get whichever design you want to show up on the cupcakes.
Here is the finished cupcakes. Aren't they cute? I was inspired by quilters so that's why I added the stitching lines.