Line a 9×9-inch baking dish with parchment paper.
In a large saucepan over medium heat, mix the sugar, butter, and evaporated milk.
Bring the mixture to a boil, stirring constantly. Leave on heat until the mixture registers 234°F on a candy thermometer (about 5 minutes). To check without a thermometer, drop a small spoonful of the mixture into a glass of cold water—it should form a soft ball that flattens slightly when pressed between your fingers.
Remove from heat. Stir in chocolate chips, whisking until melted and smooth.
Add marshmallow fluff, walnuts (if using), and vanilla extract. Stir to incorporate.
Gently fold in the chopped maraschino cherries last to prevent bleeding.
Transfer the fudge to the prepared pan, spreading it evenly.
Let the fudge set at room temperature for 4 hours. Or, refrigerate for at least 4 hours for a firmer texture.
Cut into squares and serve at room temperature.