An ICO file is an image format used to store icons for Windows programs, files, and folders. It contains two bitmaps: 1) the AND bitmap - the image mask (which determines what part of the icon is transparent) and 2) the XOR bitmap - contains the icon which is mapped onto the image mask. ICO files can be modified to create custom icons.
The "favicon.ico" file is used to store a small website logo that appears in the address bar of a Web browser. If a website has a favion.ico image, it will appear to the left of the Web address when any page of the website is loaded. The favicon.ico image file must be 16x16 pixels and stored in the root directory of the website in order for the Web browser to recognize it.
An ICO file is similar to a Windows cursor (.CUR) file, but has a different identification byte in the header.