FarCry looks for 404.cfm in projectroot/errors/ and webroot/errors/. If the user tries to view content that doesn't exist and you have provided a 404 template, FarCry will display that instead. Using the webroot folder is particularly useful if you want to use the same location for ColdFusion 404 and 500 templates.
Remember that 500 pages should not use FarCry resources (tags, webskins, etc) to display, as these might be the source of the error.