(1) Importance of FavIcon
>> It will give your site an unique presence, helps you to build your own online branding.
There are large number of blogs out there at blogosphere but very few have favicon, means they are unaware of it. Build a favicon for your site and be unique among them.
>> Your favicon will present at tab bar and search bar, rss feed(while peoples read your feed through feed reader), comment section(some blog fetch favicon and place just beside your comment), google search(through firefox extension - ). All these will increase CTR(click through ratio) hence traffic to your blog.
(2) Create your FavIcn
Your can create your favicon through Paint tool easily.
Rather, there are some website(like - http://www.favicon.co.uk, http://tools.dynamicdrive.com/favicon ) out there where you can convert image into icon and some(like - http://www.degraeve.com/favicon , http://www.favicon.cc) can help to build favicon directly.
While creating favicon be careful that it should be unique yet identifiable(peoples can easily identified your blog just by watching favicon).
Remember, favicon will be saved in .ico file extension.
(3) How to add FavIcon to your website
>> First upload the favicon at root directory(or image hosting website that supports .ico extension)
>> And then, add the following meta tag between < head > -- put the tag here-- < /head >
meta tag: < link rel="shortcut icon" type="image/ico" href="/favicon.ico" / >
You are done. Refresh your browser or wait for some moment to watch it in action.