John Gruber wrote recently about favicons in Safari
The gist of it is two-fold: (1) there are some people who strongly prefer to see favicons in tabs even when they don’t have a ton of tabs open, simply because they prefer identifying tabs graphically rather than by the text of the page title; and (2) for people who do have a ton of tabs open, favicons are the only way to identify tabs.
A lot of people seem to agree that Safari should display favicons as a way to quickly find a page among a sea of open tabs. Personally, I've never found that to be all that useful in finding a particular tab. Gruber makes some good points, but the way I deal with a large number of tabs is through the tab exposé feature in Safari. Just pinch on the trackpad (or use the shift-cmd-\ keyboard shortcut) to see a grid of thumbnails of all your tabs. From there, you can visually identify the page you're looking for. Alternatively, if you just start typing, the grid of thumbnails will be filtered based on the search.
I find this method to be much better than trying to remember where in a row of tabs a particular page is, or trying to identify a site based on the favicon in the tab bar, but that's just me.