A favicon (short for “favorite icon”) is an icon associated with a website or webpage intended to be used when you bookmark the web page. Web browsers use them in the URL bar, on tabs, and elsewhere to help identify a website visually. Also, it is used as application icon of mobile device.

A favicon is typically a graphic 16 x 16 pixels square and is saved as favicon.ico in the root directory of your server. You can use a favicon with any WordPress site on a web server that allows access to the root directories.

Source: Creating a Favicon « WordPress Codex