Does Favicon aids SEO ?
Favicon is the short form for Favourites Icon. It is associated with a website or web page and helps in distinguishing a website from the other. The drop down list depicted in address bar on FireFox and now IE7 browser has identity icons positioned strategically before the URLs. FireFox browser utilizes Favicon quite distinctly.
Favicon is typically an image file. Favicon was originally created by Microsoft for Internet Explorer IE used to call URL /favicon.ico placed in the root for displaying the icon with the URL in browser window. Mozilla later on added support for Favicon in conformance with Web standards through the use of <rel=”icon”> e.g. <link rel="icon" type="image/png" href="/path/image.png">. Now most web browsers have added support for Favicon.
As per the latest web standards, Favicon does not support Search Engine Optimization. Linking a symbol or for that matter image with url of website and positioning it at the beginning of URL makes a website or webpage distinct and easy to associate. The best Favicon images are displayed in 16×16 pixels sizes.

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