One way is to use FavIcon from Pics -- free, instant favicon for your site
Another way is to grab a smiley graphic from say a GPL forum script, or one of the icons from: WordPress › Atahualpa � Free WordPress Themes Wordpress theme.
Then cut and paste the image to: Greenfish Icon Editor which you can find online for free. And make one of the images 16x16 pixels.
Save your icon as favicon.ico and upload to your site's home directory.