So what's a Favicon? It's short for favorites icon and sometimes called a website icon or bookmark icon. It's like this:
Adding this helps your readers distinguish your blog from other blogs, It's like giving your blog an identity. I'll explain how to add a favicon in a simple way.
1. Open Paint or other image editors and create an image with a size of 16x16 or 32x32 or 64x64(depending on your preference).
2. Draw the image that you want, or find some pictures in google or why not use a favicon generator.
3. Save the image as PNG, ICO. GIF or JPEG.(If you're using the favicon generator, skip this step)
4. Upload it on any image uploading sites like photobucket or imageshack or tinypic
5. Now, sign in to Blogger
6. Choose a blog and click Layout
7. Click Edit HTML
8. Find(CTRL+F) <title><data:blog.title/></title>
9. Add this code BELOW <title><data:blog.title/></title>
<link href='URL' rel='shortcut icon' type='image/vnd.microsoft.icon'/>
Don't forget to change URL to the URL of the image you uploaded.10. Click Save Template
And you're done!