ICO is a kind of computer file that is used for storing small images or icons. Just like how we have pictures in our story books, computers use icons to represent different things too! For example, the 'trash' icon is used to represent where all the deleted files go.
The ICO file format is special because it allows us to save these icons in a way that they can be displayed in different sizes without getting blurry. You know how sometimes when you stretch a small picture, it gets all blurry? ICO files make sure that doesn't happen with icons!
So, basically, ICO files store small pictures called icons which are used by computers to represent different things, and they do it in a way that they can be displayed in different sizes without getting blurry. Cool, huh?