The basic ingredients in caramel frosting are butter, sugar, and milk or cream. While traditional caramel is made with butter, cream and granulated sugar, caramel frosting relies on the addition of powdered or icing sugar to lend the caramel a creamy texture.
Food.com's recipe for caramel frosting requires four ingredients and takes only 15 minutes to make. To make this recipe, melt 1/2 a cup of butter in a pan, then add 1 cup of brown sugar and boil the mixture, stirring constantly. After this is done, add 1/4 cup of milk and stir until the mixture boils again. At this point, the mixture should look similar to caramel. To make icing, add 2 cups of powdered sugar gradually, mixing well after each addition.
A similar recipe on Allrecipes calls for the milk to be added at the start of cooking. Once the milk, butter and brown sugar have boiled together, half of the icing sugar is added while the mixture is still hot, then the other half is added after cooling.
Depending on the consistency desired, the amount of powdered sugar can be adjusted. The more powdered sugar used, the stiffer the icing is going to be. If the icing becomes too thick, more milk can be added to adjust the texture. It is also possible to use cream instead of milk to make the icing richer.