In short, a 16x16px bitmap, renamed, in the web root. Or is it?
This minimal approach does actually work, but done properly, they should have a few different size versions in the same file, so that not only do they show in the URL bar, and now more recently in the tabs as well (IE8+, FF3+), but also display a different (clearer) version when dragged to the desktop.
I have been using an online tool for a few years to make mine and it’s great.
Try and use the best format that you have, but MAKE IT SQUARE first, otherwise it will get squashed.
Use this code to in the <head> section to add it..