Both PNG and ICO are image file formats, with PNG being versatile for general graphics, while ICO is specialized for icons. PNG supports transparency, works well for photographs and illustrations, and uses lossless compression, and it can have larger file sizes. In contrast, ICO is tailored for icons, offering only 32-bit color depth with transparency for seamless integration into different backgrounds, using a combination of compression techniques to keep file sizes small. While PNG serves various graphic purposes, ICO is essential for representing icons in software, websites, and operating systems.