A favicon is a small image that appears next to the website name in the tab of your browser.
It's called a favicon because it's used in your favorites list as the website's icon when you bookmark it:
Changing Your Favicon
You can upload a favicon for your store by visiting the Logo and Favicon section of your Settings page. Click the smaller camera icon below the logo drop zone to access the Image Gallery.
Click the Upload Images button to select an image from your computer, or choose an image from your image gallery and click the Use button at the top right of the pop-up.
Click the Save button to save your new favicon. It may take up to 24 hours before your updated favicon is visible to all customers.