Cut the pillars flush with the top of the cake. each tier is on a plate and the legs of the plate fit inside the pillars in the lower cake.
Ditto what Debi said.. lol
Seriously, when I do a stacked cake I use the hidden pillars exclusively. Makes a good sturdy cake. I have even transported a 3 tier completely assembled and had no problems.
How are hidden pillars stronger than regular wooden dowel rods?
Illustrated common cake support systems:
(With complete and accurate directions.)
If you click on any of the support system pics, more info is given which will probably answer a lot of your questions.
More on SPS system:
(See Leahs post.)
Illustrated "how to cut level dowels" by indydebi: