Favicon (pronounced fav-eye-con) is short for ‘Favorites Icon.’ A Favicon is an image included on nearly all websites. Within a browser the Favicon is displayed on the Address line and in the Favorites menu. The Favicon allows the webmaster to further promote their site, and to create a more customized appearance within a visitor’s browser. Often, the Favicon reflects the look and feel of the web site or the organization’s logo.
Here are some free and easy ways to create and display your very own customized Favicons.
FavIcon from Pics – Generates favicon images for browser address bars, favorites and tabs, from pictures, logos and other graphics. ***Pai’s Favorite***
AntiFavicon – Simple online tool that can create text favicons in different colors.
Collabyrinth – A free, online icon editor by Andy Deck for producing favicons in the windows ICO format. Requires Java. You can create your own from scratch pixel by pixel.
DeGraeve: Favicon Editor – An online favicon editor by Steven DeGraeve, which also offers the option to generate a favicon from an uploaded PNG image.
Favicon Generator – A free online tool which creates a favicon.ico from an uploaded image.
Graphics Guru: Favicon Generator – Free online tool that can create favicon (.ico) images.
After you create your new favicon simply download it then upload it to root folder of your website via FTP (such as the free FileZilla). That’s all there is to it!
Here’s the one I made with the online text editor.
Here’s one I made with the image converter editor. 
It’s fun and makes your website URL look better in the address bar as well as when it’s saved as a bookmark.