A new feature on IE5 looks for an image file called "favicon" on your server when some using IE5 adds your site to their favorites.
If you have this file, your icon will be placed next to your page title on their list of favoirtes. Most sites aren't using this so it really makes it stand out!
If you are using IE5 and want to see a live example, check out http://swissarmyknife.net/ and add it to your favorites (or press CTRL-D). The little red cross (my icon) will show up in your fav list and also show up in the location bar when you load the page. Very cool.