In a medium bowl, dissolve the lemon gelatin in 1 1/4 cups of boiling water, stirring for about 2 minutes until completely dissolved. Add the 1/2 cup of cold water and stir to combine. Let the mixture cool to room temperature for about 10-15 minutes—this prevents it from cooking the cake when poured. While the jello cools, take your cooled lemon cake and use a fork or skewer to pierce it all over with holes, spacing them about 1/2 inch apart across the entire surface.
Carefully pour the cooled lemon jello mixture over the entire surface of the poked cake, making sure it seeps into all the holes. I like to pour it slowly and let it absorb between pours—this ensures the jello penetrates deep into the cake rather than just sitting on top. The cake will look very wet, and that's exactly what you want! Chill the cake in the refrigerator for at least 3 hours or overnight until the jello is fully set.
Pour the 1 1/4 cups of cold milk into a medium bowl and add the lemon instant pudding mix. Whisk vigorously for about 1-2 minutes until the pudding begins to thicken and no lumps remain. Immediately fold in the 8 oz of thawed whipped topping and the 1/2 teaspoon of vanilla extract with a spatula, using gentle, sweeping motions to keep the topping light and fluffy. I find it's best to fold just until combined—overmixing can deflate the whipped topping and make the frosting dense.
Remove the jello-soaked cake from the refrigerator and spread the lemon pudding topping evenly over the entire surface using an offset spatula or the back of a spoon. You can make it smooth and neat or create a rustic, textured finish—both look beautiful. Return the frosted cake to the refrigerator and chill for at least 1-2 hours before serving to allow the topping to set slightly and the flavors to meld.
Just before serving, remove the cake from the refrigerator and arrange the thinly sliced lemon rounds around the top or in a scattered pattern across the frosting. Sprinkle the 2 teaspoons of sprinkles over the top for a pop of color and texture. Slice and serve immediately—the contrast of the cool jello, creamy pudding topping, and moist cake creates an irresistible triple-lemon experience!