Before using the candy, you'll need to crush it up by placing each color you're using in a small, heavy plastic bag and pound it with a mallet.
Cookies: In a medium mixing bowl beat butter and shortening with an electric mixer on medium to high speed for 30 seconds. Add sugar, baking powder, and salt. Beat until combined, scraping sides of bowl occasionally. Beat in eggs and vanilla until combined. Beat in as much of the flour as you can with the mixer. Stir in any remaining flour with a wooden spoon. Cover and chill for one hour or until dough is easy to handle.
Preheat oven to 375. On a lightly floured surface roll a portion of the dough 1/4 inch thick. Cut dough using desired shape. Cut out cookie centers with smaller cutter of the same shape, leaving about 3/4 inch border of dough. Place on foil lined cookie sheet and fill center with crushed candy. (If you're going to hang the cookies, use a straw or wooden dowel to make a hole in the dough for the ribbon!)
Bake for 8-10 minutes or until edges are firm and bottoms are lightly browned. Cool on cookie sheet for 1 minute. Transfer to wire rack; cool completely before decorating.
ROYAL ICING: In a medium mixing bowl combine meringue powder, water, powdered sugar, vanilla, and cream of tartar. Beat with an electric mixer on low speed until combined; beat on high speed for 7 to 10 minutes or until mixture is very stiff. Makes 3 cups.
Divide the icing between two small bowls; stir paste food coloring into each bowl to make desired colors. Transfer 1/4 of the icing of each color to a decorating bag; set aside. Stir a few drops of water at a time into the remaining icing in each bowl until the icing is of a flowing consistency. Spread cookies with the thin icing. Sprinkle cookies with colored sugar while the icing is wet, or allow icing to dry and pipe designs with the thicker icing in bags. If desired, add dragees while the icing is wet.
My own tip: In the photo they have outlined the edges with the royal icing of piping consistency and then filled with the royal icing of flowing consistency. If you want your icing edges to have such sharp definition like the cookies in the photo have, that's what you'll need to do instead of just spreading the icing on with a knife. But spreading is faster and still looks fabulous!!!