Here is a link to an excellent favicon generator:
http://tools.dynamicdrive.com/favicon/It saves the image to the proper file for you. All you have to do then is upload the image to a file site like File Den.
So here is what to do:

create the favicon using the above link,

save the file to a site like file den

add the link to the favicon to this script:
- Code:
<link rel="shortcut icon" type="image/x-icon" href="LINK TO FAVICON" />
<link rel="icon" type="image/png" href="LINK TO FAVICON" />

You then put that code into the "other meta tags" That area is here:
Admin Panel
Homepage
now place that script in the text area besides "Other Meta tags"