Tony:
This may help you:
ICO (Windows Icon) file format plugin for Photoshop
I haven't tried it, so can't vouch for whether it works or not.
Basically an icon file has the extension ICO, and you can put them more or less anywhere. If you want to use it as an icon for a desktop shortcut, the best place to put it would be in the same folder as the application's EXE file. If you're going to use it as an icon for an application you're programming it doesn't matter where you put the original ICO file, as it will get incorporated into the EXE when you compile the application.
Hope this helps.