I recently did a cake using Wilton's stencil kit. This was in a class I am taking. My cake was iced in buttercream and crusted. I placed the stencil on top and then carefully spread buttercream (thin) over the stencil. Pull the stencil straight up off the cake and there you go.
You could use the spray color, powdered sugar, glitter, colored sugars.
If you are using colored sugars or something that needs to stick you can place the stencil over crusted buttercream, spread a thin layer of buttercream on the stencil then add the sugar or glitter.
You could use any stencil pattern or make your own on the plastic sheets.
Does that make sense? I will post a picture of the cake I did. It is not perfect but it was my first try.