The image format must be .ico
you can create your icon starting from images in different formats via several online services as:
www.favicon.co.uk
www.favicon.cc


Once you've created the image and saved it on your computer, you may install it on your site. Here's how to proceed:

1 - go to Administration > Graphic Options > Site icon
2 - choose "Uploading a custom one" from the drop-down menu
3 - Click on "Upload your icon"
4 - Choose it from your computer and send