For creating favicon:
You can use online services for ico creating, like this: http://www.faviconer.com/
For change favicon:
Open the themes/PandoraBox/ folder and replace file favicon.ico (with same name), then clear browser cache. It may not work immediately, browsers update favicons rarely.
The favicon.ico should have 16 x 16px size.
More in official WP documentation: http://codex.wordpress.org/Creating_a_Favicon
(I recommend to place favicon to theme folder, not root directory)
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