When developing a new website, one of the last things that usually gets done is designing and creating a “favorite” icon for the site. The favicon is an icon that gets displayed in various places for your website visitors. Visitors using tabbed browsers (IE7 and 8, Firefox 2+, Chrome, Safari and Opera) will see the favicon at the left edge of the tab marker; the icon will be used in the bookmarks menu and/or toolbar when the visitor bookmarks your website; it is used as the shortcut icon on Windows when someone creates a desktop shortcut for the website and more.
Although it is possible to use GIF, PNG, JPG and BMP files as your favicon, browser support can sometimes be really inconsistent for those file formats. However, the Windows icon (ICO) format is pretty universally supported, and allows a great deal more flexibility than some of the other file formats.
Unfortunately, however, Photoshop users have probably figured out by now that PS does not support the ICO file format and are probably scratching their heads trying to figure out how to create a favicon file. There are plug-ins available for both Photoshop and Fireworks that allow designers to export images as ICO files, but those may not be ideal for all users.
Instead, you can easily download The GIMP for free (available on Windows, Linux and Mac), which has native support for ICO files.