Hi - new around here and stumbled across this question. Basically, the first step is creating an .ico (Icon file) and it needs to be hosted somewhere. In the <head> coding of the template of this site, you need to enter in this code below, but changing the respective things.
<link rel="shortcut icon" href="http://yoursite.com/favicon.ico" />
Hope that helps some. I've done some website design work in my free time and it always pays to read the code of successful sites.
As far as icon creation goes, you're going to need a program that can open and save .ico files as they're not a standard in image editing software programs. Photoshop, with a correct plugin can do this, but there are some specifics that have to be followed for the icon to show up in the address bar and the favorites links. For IE, the .ico image must be 16x16 pixels, RGB mode and contain no more then 8 bits per channel. Those fluent in graphic editing will understand this.
I'd be happy to help with this in some way if need be.
Great site here - I'm going to keep poking around!