What a PNG file actually is
PNG arrived in 1996 as a patent-free replacement for GIF and compresses with DEFLATE — the same algorithm as ZIP. Nothing is discarded, so a PNG decodes to exactly the pixels that went in, and it carries a full 8-bit alpha channel rather than GIF's single transparent colour.
Screenshots on every operating system default to PNG, as do exports from design tools and most logo and icon assets. Anything with crisp edges, flat colour or a transparent background has probably been living as a PNG.
What you get from ICO
ICO is a container that holds one or more small square images, with transparency, for use as an icon. It caps out at 256×256 — anything larger has to be scaled down, and the format is not intended for general pictures.
Every browser requests /favicon.ico by default, with no HTML required, and Windows uses ICO for application and shortcut icons. It is a narrow format that is completely reliable inside its niche.
What changes when you convert PNG to ICO
Both formats are lossless, so nothing is thrown away in either direction — this is a container change rather than a quality decision. What differs is how efficiently each one packs the same pixels, and how widely each is supported by the software you need to open it in.
Transparency survives intact. Both PNG and ICO carry a full 8-bit alpha channel, so cut-outs, drop shadows and anti-aliased edges convert without a white box appearing behind them, and the result still composites cleanly onto any background colour.
ICO cannot exceed 256×256, so anything larger is scaled down to fit while keeping its aspect ratio. Work from a square source if you can — a wide image gets letterboxed into the square, and fine detail disappears entirely at the 16-pixel size a browser tab actually renders.
PNG is the usual favicon source and needs no preparation beyond being square. Because both formats are lossless, the icon is exactly the design you drew, right down to the transparent corners of a rounded badge.