Step 4. Click the "choose file" button, and keep the window of your photo editor open though because Blogger might say it's to big of a file or to small, etc. Anyhow, after you click the choose file button, and click your saved photo. Or, if you have a TON of files, like me, just type it in.
I hope this helped ^.^
Sorry my thoughts are jumbled everywhere. Lol. :)
EDIT: Your favicon will take a couple of hours to a day to show up. Those of you who are having that problem, I did too. :)