Favicon is a shortening for favorites icon, which is also known as a website icon, shortcut icon, url icon, or bookmark icon. It is an image that is displayed in the address bar or tabs of a web browser. You will see something like this in your address bar and probably the image and the title of the page if your browser is tabbed based.

The format for the image must be 16x16 pixels or 32x32 pixels, using either 8-bit or 24-bit colors. The format of the image must be one of PNG, GIF, or ICO. Although PNG and GIF don't work for Microsoft Internet Explorer.
A favicon is added to a webpage with this small piece of html code between the <head> tags. Both lines are added to ensure that the favicon is displayed in different browsers.
<link rel="icon" type="image/ico" href="favicon.ico" /> <link rel="shortcut icon" type="image/x-icon" href="favicon.ico" />
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It is possible to use either a standard image or an animated image as the favicon. The animation don't work in all browsers either. But in the case it isn't supported, a static representation of the image will be displayed instead.
So either you can create your own favicon in an image processing program with any of the dimensions and file extensions specified above or you can use an existing one from a gallery or you can create an animated favicon with a static image as the base.
has created a set of animated favicons which starts to animate after a while to avoid irritation. The backside of Animated favicons is that they can be really annoying and irritating if they are not displayed in a smooth and subtle way. So I suggest a bit of caution regarding this and to think it through. People will in a few seconds decide if they like a website or not, not always themselves understanding why. Too much animations and flicker can be one of the reasons. Therefore Erwin's approach of delaying the animation is a good idea and then the actual animation in my opinion even more important.
Favicon galleries:
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Generate favicons:
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References:
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