From Halopedia, the Halo wiki
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Bungie Favorites is a weekly updated list of in-game Screenshots, Films and Clips, Gametypes, and Maps that Bungie and the Halo 3 community recognizes as noteworthy usually this is due to the number of downloads it has acquired. Everything shown in the Bungie Favorites has been created by people who play Halo 3. Bungie updates this list every Friday and it is accessible by pausing Halo 3 in the Main Menu or any of the lobbies as the first option. Bungie Favorites is only accessible through Xbox Live, and online at bungie.net.
The best of the best are considered to be in Bungie Favorites. Screenshots are among the most popular type of File in Favorites. Until recently individual players were given Bungie Favorites for their Files. But Bungie gave groups on Bungie.net the ability to send in Files that get put to the Favorites. Many groups on Bungie are themed, so they sent in files for their theme. For example; The first group sent in pictures of Out-of-map-Campaign-levels.
Presenting a Problem
Because groups were able to post favorites, individual users were unable to get their content to be recognized. Many complained on the Forums of Bungie.net.
Cheating for Recon
There have recently been many rumors about Recon having things to do with a certain person/s being on Bungie favorites. This is, contrary to popular belief, in no way true. Some people on Bungie Favourites do have Recon armor but this is because the item they have given positively contributed to the community of Bungie, but this is Bungie regularly state, they will only give the honor of recon to people who have contributed "awesomely" to the Bungie/Halo community or to finish the Vidmaster Challenges.