How is the teal cake effect is done?
It is what I call the water color effect, which is achieved by first completely smoothing the cake with white buttercream, then add blobs of colored frosting in any pattern you desire, then smoothing and blending it in with the bench scraper.
Can it be done on fondant say with a sponge paint type of effect? Maybe dab tissue?
You could definitely do this on a fondant covered cake. I would just vary the intensity of the teal color and start from the bottom up. I would probably just use a brush and paint the color on, but I don't see why you couldn't play around with different tools to see the effect they give. Practice on some extra fondant to see what tool you like best and also to make sure the colors are what you want them to be.
Sure and I think the sponge is a great idea and would give the closest approximation to the photo.
Looks like fondant to me! Use petal dusts mixed with everclear and make it a watercolour, paint it on then use a sponge or paper towel to wipe it off. It is very fun!