1. Open a favorite image that you like to turn into a favicon to appear in your browser's location bar
  2. Click Image->Mode->RGB
  3. Using the erase tool, erase any areas of the graphic that you'd like to be transparent
  4. Using Image->Scale, resize the image to 32x32, the proper size for a favicon
  5. First save the file as a GIF
  6. Select * Convert to Indexed using default settings
  7. Click Export
  8. Save a copy as .ico.
  • It will give you a number of choices for bits/pixel:
    1 bpp, 1 bit alpha, 2-slot palette
    4 bpp, 1 bit alpha, 16-slot palette
    8 bpp, 1 bit alpha, 256-slot palette
    32 bpp, 8 bit alpha, no palette