How are you looking at it!
Converted to a hex-dump, then just scrolling through it.
if I open it in notepad
Excuse me while I vomit.
Can you pick one and possibly give an example.
The first two 32 bit numbers are obvious, because there are many zeros in the first eight bytes. Multiplying the values from the first two 32 bit numbers happens to give the file size minus eight.
You can call that finding a "breakthrough", because from that information one can conclude
(a) The first two 32 numbers provide width and height (or height and width) of the image. One can assume the larger number is the width, assuming most .ico files contain images in landscape orientation.
(b) The data is eight bytes per pixel.
(c) Since it is a color image, it either needs a color pallet or uses an 8 bit RGB encoding, like 4:4:2 (the later can also be used as index into a trivial color pallet).
(d) The file size indicates there is no color pallet in the file. Therefore the mapping of the 8 bit values to colors needs to be hard coded somewhere else in the DSO software or even display hardware.
The last point (d) is the reason I didn't looking further. It is rather boring to reverse-engineer the 256 (8 bit) color pallet, and I couldn't bother looking further.
So if it's pretty primitive what do i have to do to edit/make one?
First of all, get decent tools. Notepad isn't.
Unless someone manages to identify the file format and knows tools for it:
Get documentation of a typical, common, simple image file format, like .gif. Reverse-engineer the color pallet or just start with guessing one. Write software to generate e.g. a gif file, consisting of adding the color pallet to the file, and converting the data from the .ico file. It is just tedious work, and I don't see the point doing it.