To change a folder's icon:

Open Notepad and enter two lines,
[.ShellClassInfo]
IconFile=file name,number
(e.g. IconFile=C:\Icon\CustomFolder.ico,0)

Save the file as DESKTOP.INI in the folder you wish to change.
Click Start -> Run, type in the command line,
ATTRIB +S "folder name"
(e.g. ATTRIB +S "C:\Custom Folder")
Open Explorer or My Computer and refresh (press F5 key).
This tip only work Windows 95/NT 4.0 + IE 4.0 with shell integration, or Windows 98/NT 5.0.