Icing? fondant? royal icing?

looks like fondant.

very cute! =]

Proper fondant icing is made from sugar and water, boiled to a high temperature and beaten on a slab. You can buy a cheat's version of ready made fondant icing but IMO it's horrible. Royal icing has eggwhite in it. For a sponge cake use glace icing, just icing sugar with a little warm water in it.

Yes, that is fondant. All the different shapes are cut fondant as well. If you haven't worked with it, it's like sheets of icing, you can cut it. When you place the main pink icing on the cupcake, you have to spread a little regular icing on the cupcake first, then the fondant. This makes it stick. When you place the shapes on the pink fondant, you wet the backs of the shapes or the space on the pink you are going to place it. This makes it stick together as well.

yeah it is fondant shaped into rainbows and clouds on the cup cakes.. to learn how to make fondants visit the sites on google search

Those definitely look like they were made from fondant.