This reminds me of my hippie days in the '60's when I made earrings.....this are marvelous! Great colors and designs. I regret that, since I no longer have a neck (!), I could never wear this but I am in love.
You can definitely paint and varnish first. It's a preference of which you like best. I don't care to paint and varnish all the little pieces. I sometimes decorate the entire front and back of the paper before cutting. I typically start with a piece of paper no bigger than 3x3, which makes it very easy to work with and use up.