Our Magento skin can also include a favicon file as well. All we need to do is save a favicon.ico
file in the skin directory of our theme. In the case of the Cheesy Cheese Store's new theme, we'd save our favicon as skin/frontend/default/cheese2/favicon.ico.
Favicon generators
There are quite a few free favicon generators on the web, which allow you to specify an image (for example, a GIF, JPEG, or PNG) and convert it to an .ico
format. The Dynamic Drive web site has a reasonable one. See http://tools.dynamicdrive.com/favicon/