ICO - is an icon file format designed to store any icon, png file or bmp image inside. To understand more, imagine that the *.ICO file is just some empty box where you can put numerous magazines, each of these magazines have different size and color. In our case these magazines are an images, so our icon file is just a storage for this images. ICO file can contain 1, 2 or more images (even animated ones) with different sizes and colors. Why multiple images and sizes? Because in this case the icon file may be scaled appropriately.
ICO was designed by Microsoft Corporation and was introduced in Windows 1.0. Each icon displayed to the user (start menu, explorer, window screen, desktop) is an .ICO format. You can convert it back to original graphic images by extracting them from the icon directory structure.
Icon file has it's own specification and structure, so you can't just rename .PNG or .GIF file to .ICO to make it works. You should create it using special software only. You can use Photoshop plugin to create ico or you can use Faviconer online generator to convert ico from any graphic image, like png, gif, etc. After that you can download file ico for free and use on your PC, Mac OS or website.
Nowadays, with the emergence of new devices and screen resolutions, the ICO file introduces a lot of new features like shadows, shapes, anti-aliasing, smoothly scaling, non-standard sizes, etc.
You can convert ICO and use it for: