favicon.ico is an icon file Internet Explorer 5 looks for when someone using IE bookmarks your website. If favicon.ico exists and is in the right format, IE will download that image and use it in your favorites list, location bar and desktop. If favicon.ico doesn't exist, then you get a "File does not exist" error in your error log.

The easiest way to make a valid favicon.ico is to use the online java favicon.ico generator at http://www.favicon.com