A cupcake occupies one square and is stuck until cleared. It can be broken by making candies adjacent to it, or through any special candy's effects reaching the cupcakes. This procedure needs to be repeated as many times as there are more layers.
Color bomb + color bomb combination can take off one layer of all cupcakes. Color bomb + coloring candy can strip all layers of cupcakes.
Destroying the last cupcake layers doesn't give you any points, unless the last hit is candy fish, which gives to you 60 points.