procedure TForm1.Button1Click(Sender: TObject);
var
  IconSizeX : integer;
  IconSizeY : integer;
  AndMask : TBitmap;
  XOrMask : TBitmap;
  IconInfo : TIconInfo;
  Icon : TIcon;
begin
{Get the icon size}
  IconSizeX := GetSystemMetrics(SM_CXICON);
  IconSizeY := GetSystemMetrics(SM_CYICON);

{Create the "And" mask}
  AndMask := TBitmap.Create;
  AndMask.Monochrome := true;
  AndMask.Width := IconSizeX;
  AndMask.Height := IconSizeY;

{Draw on the "And" mask}
  AndMask.Canvas.Brush.Color := clWhite;
  AndMask.Canvas.FillRect(Rect(0, 0, IconSizeX, IconSizeY));
  AndMask.Canvas.Brush.Color := clBlack;
  AndMask.Canvas.Ellipse(4, 4, IconSizeX - 4, IconSizeY - 4);

{Draw as a test}
  Form1.Canvas.Draw(IconSizeX * 2, IconSizeY, AndMask);

{Create the "XOr" mask}
  XOrMask := TBitmap.Create;
  XOrMask.Width := IconSizeX;
  XOrMask.Height := IconSizeY;

{Draw on the "XOr" mask}
  XOrMask.Canvas.Brush.Color := ClBlack;
  XOrMask.Canvas.FillRect(Rect(0, 0, IconSizeX, IconSizeY));
  XOrMask.Canvas.Pen.Color := clRed;
  XOrMask.Canvas.Brush.Color := clRed;
  XOrMask.Canvas.Ellipse(4, 4, IconSizeX - 4, IconSizeY - 4);

{Draw as a test}
  Form1.Canvas.Draw(IconSizeX * 4, IconSizeY, XOrMask);

{Create a icon}
  Icon := TIcon.Create;
  IconInfo.fIcon := true;
  IconInfo.xHotspot := 0;
  IconInfo.yHotspot := 0;
  IconInfo.hbmMask := AndMask.Handle;
  IconInfo.hbmColor := XOrMask.Handle;
  Icon.Handle := CreateIconIndirect(IconInfo);

{Destroy the temporary bitmaps}
  AndMask.Free;
  XOrMask.Free;

{Draw as a test}
  Form1.Canvas.Draw(IconSizeX * 6, IconSizeY, Icon);

{Assign the application icon}
  Application.Icon := Icon;

{Force a repaint}
  InvalidateRect(Application.Handle, nil, true);

{Free the icon}
  Icon.Free;
end;