Generating a FAVICON (.ICO) file with Adobe Photoshop CS5, CS6, and CC (Creative Cloud) requires a simple plugin.
Download the CS5/CS6 version of the ICO Format plugin from here: http://www.telegraphics.com.au/sw/product/ICOFormat#icoformat
You’re looking for this (or something newer):
Open the DMG file you have downloaded.
Install the .plugin file from the DMG, by copying it to the following folder:
/Applications/Adobe Photoshop CC/Plug-ins/
(Replace CC with CS6 or CS5 if that’s the version of Photoshop you have)
Start or restart Photoshop.
Create your image. Make sure it is a perfect square, and resize it to a maximum of 256×256 pixels BEFORE you try to save it as an .ICO file. If you’re making a FAV ICON for a web page you’d normally go with 16×16 or 32×32 pixels.
Do a Save As… in Photoshop. Select the file format as ICO.
You now have a FAVICON in .ICO format.