The Marshmallow Fairies exist in the Willy's Awesome Adventure universe as ancient sages and guardians of heaven above, the Cloud Kingdom. They are seen to grant boons to heroes, such as in the end of Mine Time. These power ups, the Marshmallows, are the most sacred power ups of all: they release a character's ultimate form.
One of the marshmallow fairies did a Yoda-type training with Willy Johnson in the time between Mine Time and Mine Time Pt. 2. He got shot with an arrow and died in Pt. 2, implying that Marshmallow Fairies can easily get shot and die.
The Marshmallow Fairies seem to be led by an older and more stern Marshmallow Fairy as seen in Battle for the Quarry. He watches Perry the Popcorn massacre Bomblings and decides that the fairies must no longer give out marshmallows willy-nilly. Haha, WILLY nilly! Hahaha.
Marshmallow fairies are very ancient and magical miniscule [lacuna]