If it looks dry, then it is dry. The cracking just further proves that. Try adding some moisture.....I find that adding some shortening helps (not too much tho). Also, the more I knead the fondant, the less dry it seems to be when I get it all rolled out. And sometimes, ya just get a bad box of fondant (if you buy yours) that no amount of kneading/moisture seems to help and you just have to throw it out. Hope this helps!
If there are little spots on the cake where the fondant starts to crack - the corners of square cakes always seem to be any issue for me - you can use a little shortening and rub it into the area to patch it back together 
When I started making fondant cakes I was using Virgin Ice and it cracked all the time. Now I have switched to a brand from my local baking store and no cracks. Not sure what you are using but you might want to switch if you find that it cracks all the time.
Good luck!
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