UPDATE: Theres an easier way to do this here: http://www.htmlcenter.com/blog/creating-a-favicon-for-your-website/.

http://linuxproblem.org/art_19.html

By Mathias Kettner :

You need an image file that GIMP can open (PNG, GIF, etc.). And you need the command line tool ppmtowinicon from the netpbm-tools (on SuSE you have to have installed the package netpbm). Now perform the following actions:

• Open your image with GIMP.
• If your image is not a square then resize the canvas with GIMP.
• Scale the image to 16x16 pixel (Image, Scale image).
• Choose File, save as.. and save as favicon.ppm with raw encoding.
• Close GIMP
• Convert favicon.ppm using the command line utility ppmtowinicon:

ppmtowinicon -output favicon.ico favicon.ppm

That’s all. Now copy your favicon.ico to the document root of Apache, for example to /srv/www/htdocs/favicon.ico, if you are using SuSE Linux >= 8.1.