The icons Windows uses throughout your system are just small graphics files with a standardized filename extension. It's easy enough to make your own, whether you've written a home-rolled software program or want to personalize your desktop. You can use Paint to turn a basic JPEG image into an icon file, although other programs may do it better or more simply.
Understanding Graphics File Extensions
With graphics files and other computer files, the three-letter extension at the end of the filename has a specific meaning. Usually, it tells you how the file is encoded, and sometimes what program created it. The first part, how the file is encoded, is usually the most important with graphics files.
Some extensions, including JPG, GIF, PNG and BMP, are raster graphics formats. They store your image exactly as it is, pixel by pixel, at the size you specify. When you blow one up to a larger size, each pixel gets bigger, making the image look pixelated like an old video game. Typically, icons are made with this kind of image.
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The file extension used for icons on windows, ICO, isn't a graphics format as such. It merely tells Windows that the image is intended for use as an on-screen icon. The underlying graphic just has to be in a format that Windows can recognize and work with, like JPEG, and be an icon-appropriate size.
Icon Size, Color and Detail
Windows uses icons in several sizes, with the most common being 16 by 16 pixels, 32 by 32, and 256 by 256. Older icons used only 16 colors, but since Windows Vista, 256-color images have been the standard. For current systems, then, your best bet is to create or resize your images to the standard size of 256 by 256 pixels and 256 colors.
You can make a 256 x 256 image smaller, but enlarging a small image makes it look blocky. The only downside to shrinking your image is that cluttered or too-detailed images become indecipherable. To avoid that issue, aim for a clean, simple design that clearly communicates the icon's purpose.
Create the ICO File
You don't convert JPG to ICO when you're creating an icon file. All you're doing is renaming the file, so Windows knows you intend to use it as an icon. So, after you create or import a suitable image into Paint and set it to the correct dimensions, creating the ICO file is straightforward.
From the Paint menu, choose Save As, and then select JPEG Picture from the menu of file formats that pops up. Next, enter a filename with the .ico extension and save the file. That's it. You're done.
Using an Icon-Creation Utility
You can certainly use Paint to create your icon files, but it isn't the best tool for the job. While the actual saving part is easy, adjusting the size and colors of the image can take time. You might find it simpler to use a specialized icon-creation tool, instead.
There are several free or inexpensive icon-converter utilities available for download, including iConvert Icons, icofx and the aptly named Free Icon Editor. The features vary from program to program, but most accept multiple graphics formats and automatically output a usable icon file. If you don't want to mess around with an ICO converter download, you can use one of the several online converters.
A Question of Transparency
You may want to choose a different graphics format, rather than JPEG. Aside from using 256 colors, icons from Windows Vista onward have supported transparency. You still see the icon, but you can also see something of the desktop underneath.
JPEG files don't support transparency, but other common file formats including GIF and PNG do. Both are equally capable of making small graphics files, so there's no reason not to use one of them as the basis for your icon. Converting a GIF or a PNG to ICO is no different or harder than starting with a JPEG file, and the result may be a better-looking icon.