There are a couple of ways to set the favicon for your wordpress blog/site:
Upload the favicon to the directory of your currently activated theme. i.e if your current theme is twenyeleven then open an FTP connection to that directory and simply upload favicon.ico to that directory
If you dont wanna keep your favicon in the same directory as your activated theme, then you can insert the following line of codeinto the header.php file of your current theme.
Cherio!