It's hard to tell from the photo, but I think the small gap between the crown (once it's installed) and the side of the cabinet can be caulked. Just make sure the caulk matches the cabinet finish. I would tack the crown in place, see how big the gap is, then make my choice.

Thanks for your quick reply. I am worried that caulking it would make that area stand out as it would be the only part in the kitchen that is caulked?

Redo. Needs to be flush all the way around.

That's what I was afraid needed to be done... not my finest DIY moment. So it's already secured to the cabinet frame, do you think sanding would be my best bet?

No sanding. Unscrew the screws that you used to mount it from the interior. Then recut it and remount it correctly. Blocking should really be finished before mounting too. Raw wood isn’t going to work.

I like one coat of similar stain because you never know what kind of gaps will develop when you have a newbie doing a molding project. A classic nailing cleat and a Pro? Nah.

Brandi-

Sanding that will never work and will create frustration and damage. I don't know what your skills are or your tools, but the easiest way to deal with this -- which I've done with trim a number of times in similar situations -- is to remove a bit of wood from the backside of the molding so that there is room for that obstruction. This presumes, of course that the height of the crown molding when installed will be a bit more than the thickness of that mounting surface. Wood removal could be done on a router table or with a table saw. This is not difficult, but you do need a bit of skill/experience.

You've got overlay doors. Abandon the nailer; it's unnecessary. Using a Japanese pull saw, relieve the scribe strip where the molding goes or build the scribe across the top of the cabinet to flush with the scribe. Nail the crown to the cabinets. No gaps, no caulk.

I'd stain and finish before I installed it.

I did it at my house; it looks fine.

Did it at my father-in-law's too:

Go to a dedicated molding store and buy cabinet vs crown moldings. Cabinet molding is solid and a basic 90 degree vs 3 different degrees of a crown molding. In most cases there is no need for a nailing strip as when using a crown molding.

The cost to buy the nail gun, compressor, saw, material and do overs would be better spent on hiring a local carpenter. You have finished stained cabinets there is no fudging with caulk.

If these were cabinets you were repainting I would say go for it. You don't have the skill set yet don't ruin your cabinets over a couple hundred dollars.