1) First off create an image 16px X 16px in size (72dpi), and yes, it is really small :icon_smile:
To be honest you can't really draw much in such a small area so the simpler the design the better.
2) Next save it as a .gif, then visit a FREE site like:
Favicon Generator and Gallery
Upload your file, select 16x16 and click the generate button. Save the file which will be a .ico extension, if it hasn't already been named favicon ensure that it is.
3) Upload the file favicon.ico to the root directory of your website.
4) Most browsers will pick it up automatically, however, to make sure add the following tag to the <head> section of any page you want it to appear on.
HTML:
<link rel="shortcut icon" href="http://www.yourdomainname.co.uk/favicon.ico" />
If you only add this code to your index/home page then if a customer/browser visits one of your other pages without landing on your index/home page first, for example via a direct link on a search engine, then it won't display so my recommendation is to add the code to the head section on all of your pages.
Here's ours:
Hope that helps, as always any problems do not hesitate to ask.