Combine sugar and butter in a large bowl. Cream using an electric mixer until smooth. Beat in eggs and vanilla extract. Combine flour, baking powder, and salt in a separate bowl. Stir into the butter mixture and mix to combine. Shape dough into a ball, cover, and refrigerate at least 1 hour to overnight.
Preheat the oven to 400 degrees F (200 degrees C). Line 2 cookie sheets with parchment paper.
Roll dough out on a lightly floured surface 1/4- to 1/2-inch thick. Cut out different-sized stars with cookie cutters; the height of the Christmas tree will depend on the number of cookies you stack, but you need at least 7 or 8 stars. Place cookies 1 inch apart on the prepared baking sheets.
Bake in the preheated oven until cookies are lightly browned, 6 to 8 minutes. Transfer cookies carefully onto wire racks and cool completely, about 30 minutes.
Combine confectioners' sugar, meringue powder, and water in a bowl and beat at low speed using an electric blender until peaks form, 7 to 10 minutes. Pour icing into a piping bag with a star-shaped tip.
Place the largest star onto a plate and pipe a little bit of royal icing into the middle. Add the second-largest star on top, turning the star slightly so the points are offset from the previous star cookie. Repeat adding smaller-sized star cookies and attaching them with royal icing. Decorate the cookie Christmas tree with royal icing, silver balls, and other holiday decor. Roll out yellow fondant and cut out a small star to place on top of the cookie tree and secure with royal icing. Decorate remaining cookies to your liking.