The Desktop item in the Cleaning menu has a submenu with 3 items: Update, Rebuild, and Replace. Choose the one that suits your purpose.
The desktop file (known more correctly in System 7 and above as the Desktop Database file) stores the file icons used by the finder, as well as information needed to locate the appropriate application when a file is clicked on. Problems with the "Application not found" alert when you double-click on a file (and you know you have the application), you may just need to rebuild your desktop file. Also, a disk's desktop file will contain all the icons used by any application you have put on the disk since the last time the desktop file was rebuilt, even if the application is no longer there. Those icons waste space, and rebuilding the desktop reclaims that space. Be aware that comments in the Finder's Get Info window will be lost in this process, but then, that's why I never use comments in the Finder's Get Info window. In addition, aliases on a disk whose desktop is rebuilt or replaced that point to applications on other disks will no longer support drag&drop, and may have generic icons. A future version of File Buddy will fix them if I can find out how.
I recommend quitting everything else besides File Buddy before rebuilding the desktop. Because rebuilding the desktop requires quitting Finder, File Sharing should be turned off prior to telling the Finder to quit. File Buddy will quit itself immediately before the rebuilding process.
File Buddy lets you select the disks whose desktops should be rebuilt, and it automatically gets the Finder to rebuild the desktop. Only disks with true Desktop Database files will have their desktops rebuilt. This means you'll have to use the old method to rebuild floppy desktops. (Hold down the Command+Option keys when you insert the disk until the Finder asks if you want to rebuild it.)
