Hitfirm.com

A great site for more info is: http://www.favicon.com. It has a great explanation of what favicon.ico are and an online editor that allows you to save the created graphic to your computer.

http://www.axialis.com/axicons/index.html. This one is quite handy and allows you to run the program off of your computer. There is a free trial available and you can buy a single license if you choose to keep it for $14.
There are others out there, feel free to search for yourself.

Once you have a design you like you can save it and then see it with your browser. To do this one needs to be uploaded to your server with the name of “favicon.ico”. To do this you need to upload to your main directory of your website. This will be the same directory as your index.html file. If you have lower level folders for articles, products, or other files you will need to upload a copy of this file to each folder that you think someone might bookmark you from. Like for a shopping site you might have a copy in the main directory, the product directory, and any other directories. That way no matter what folder the web viewers are in when they bookmark the site they will get a copy of the favicon.ico.

An example of how popular the browsers that support this have become can be easily tracked by how many people created a “file not found” record in your server logs for the favicon.ico file until you make one. For many people that is the first time they have heard of this file. Once you create and upload your own copy of this image to all the main folders you will not see these “file not found” errors. You will have a nice looking graphic that represents your site well and may help you get noticed, as you will stand out in the bookmarks of the visitors that have book marked you. Getting repeat viewers to your website is even better than getting new visitors as they have already warmed to your message and are closer to being a customer that all of our businesses strive for.