Adding favicon in blogger is very easier, by default blogger will have the default favico.If you know how to use Gimp or Photoshop, then you can use your own creativity to create favico.Or there plenty of sites out there that generates a favicon for you when you upload an image.Do a Google Search for "free favicon Generator" and plenty of sites would come up
I used to create my images in png format, earlier i used to upload my images in Google page creator.Currently Google page creator is getting deprecated, so i have start uploading my images in code.google.com
Now in your blogger go to Layout -> Edit HTML
Now click 'Expand Widget Templates'
<link href='you url' rel='shortcut icon' type='image/x-icon'/> after
*Note : Please be sure you should place your link href after <title><data:blog.pageTitle/></title>, otherwise you will get the default blogger favico