Necessary to Add Link Tag for Favicon.Ico

Necessary to add link tag for favicon.ico?

To choose a different location or file type (e.g. PNG or SVG) for the favicon:
One reason can be that you want to have the icon in a specific location, perhaps in the images folder or something alike. For example:

<link rel="icon" href="_/img/favicon.png">

This diferent location may even be a CDN, just like SO seems to do with <link rel="shortcut icon" href="http://cdn.sstatic.net/stackoverflow/img/favicon.ico">.

To learn more about using other file types like PNG check out this question.

For cache busting purposes:
Add a query string to the path for cache-busting purposes:

<link rel="icon" href="/favicon.ico?v=1.1">

Favicons are very heavily cached and this a great way to ensure a refresh.

Footnote about default location:
As far as the first bit of the question: all modern browsers would detect a favicon at the default location, so that's not a reason to use a link for it.

Footnote about rel="icon":
As indicated by @Semanino's answer, using rel="shortcut icon" is an old technique which was required by older versions of Internet Explorer, but in most cases can be replaced by the more correct rel="icon" instruction. The article @Semanino based this on properly links to the appropriate spec which shows a rel value of shortcut isn't a valid option.

Do you have to include link rel=icon href=favicon.ico type=image/x-icon /?

If you don't call the favicon, favicon.ico, you can use that tag to specify the actual path (incase you have it in an images/ directory). The browser/webpage looks for favicon.ico in the root directory by default.

Favicon: .ico or .png / correct tags?

For compatibility with all browsers stick with .ico.

.png is getting more and more support though as it is easier to create using multiple programs.

for .ico

<link rel="shortcut icon" href="http://example.com/myicon.ico" />

for .png, you need to specify the type

<link rel="icon" type="image/png" href="http://example.com/image.png" />

Adding a favicon to a static HTML page

You can make a .png image and then use one of the following snippets between the <head> tags of your static HTML documents:

<link rel="icon" type="image/png" href="/favicon.png"/>
<link rel="icon" type="image/png" href="https://example.com/favicon.png"/>

What is the best practice for creating a favicon on a web site?

There are several ways to create a favicon. The best way for you depends on various factors:

The time you can spend on this task. For many people, this is "as quick as possible".
The efforts you are willing to make. Like, drawing a 16x16 icon by hand for better results.
Specific constraints, like supporting a specific browser with odd specs.

First method: Use a favicon generator

If you want to get the job done well and quickly, you can use a favicon generator. This one creates the pictures and HTML code for all major desktop and mobiles browsers. Full disclosure: I'm the author of this site.

Advantages of such solution: it's quick and all compatibility considerations were already addressed for you.

Second method: Create a favicon.ico (desktop browsers only)

As you suggest, you can create a favicon.ico file which contains 16x16 and 32x32 pictures (note that Microsoft recommends 16x16, 32x32 and 48x48).

Then, declare it in your HTML code:

<link rel="shortcut icon" href="/path/to/icons/favicon.ico">

This method will work with all desktop browsers, old and new. But most mobile browsers will ignore the favicon.

About your suggestion of placing the favicon.ico file in the root and not declaring it: beware, although this technique works on most browsers, it is not 100% reliable. For example Windows Safari cannot find it (granted: this browser is somehow deprecated on Windows, but you get the point). This technique is useful when combined with PNG icons (for modern browsers).

Third method: Create a favicon.ico, a PNG icon and an Apple Touch icon (all browsers)

In your question, you do not mention the mobile browsers. Most of them will ignore the favicon.ico file. Although your site may be dedicated to desktop browsers, chances are that you don't want to ignore mobile browsers altogether.

You can achieve a good compatibility with:

favicon.ico, see above.
A 192x192 PNG icon for Android Chrome
A 180x180 Apple Touch icon (for iPhone 6 Plus; other device will scale it down as needed).

Declare them with

<link rel="shortcut icon" href="/path/to/icons/favicon.ico">
<link rel="icon" type="image/png" href="/path/to/icons/favicon-192x192.png" sizes="192x192">
<link rel="apple-touch-icon" sizes="180x180" href="/path/to/icons/apple-touch-icon-180x180.png">

This is not the full story, but it's good enough in most cases.

Setting a single favicon for the entire website

For future reference use php to include the header information (including the favicon) that stays consistent on each page so that you only have to edit one file instead of a large number of files.

Use <?include "header.php" ?> on all pages where your header.php includes all the code that is common to all pages

It could be something like:

<link rel="stylesheet" href="screen.css" type="text/css" media="screen" />
<script src="../quirksmode.js"></script>
<link rel="icon" href="/favicon.ico" type="image/x-icon" />

and all the other code that needs to be included on all the pages

See more about include here:
http://php.net/manual/en/function.include.php

EDIT:
For now you could open all files in an editor like notepad++ and do a find and replace to replace all occurrences of with \r\n
where \r\n is the newline character for windows in the extended search mode.
Notepad++ has the option to do a find and replace in all open files.

Does favicon.ico need to reside in that same directory of index.html?

No, you can put it anywhere if you specify it in the tag. However, for IE, you need to give a fully qualified URL (i.e. not a relative url).

Add Favicon to Website

Simply put a file named favicon.ico in the webroot.

If you want to know more, please start reading:

Favicon on Wikipedia
Favicon Generator
How to add a Favicon by W3C (from 2005 though)

Necessary to Add Link Tag for Favicon.Ico