Difference between It and that
Both it and that are demonstrative pronouns according to English Grammar. However they are used quite differently.
It
i. The word ‘it’ indicates something near. As for example ‘Look at it’. This sentence indicates the thing to look at is near.
ii. ‘It’ is used in emphasis. As for example- ‘Yes, it is.’ In this sentence the word it emphasizes something that was spoken earlier.
That
iii. ‘That’ is sometimes used as a kind of conjunction. As for example ‘it is quite important that you look both sides while crossing the road’. In this case the word that connects the two sentences ‘it is quite important’ and ‘you look both sides while crossing the road’
iv. The word ‘that’ implies time. As for example ‘that is the end of the game’. The word that here indicated the time when the game ended.
Let’s consider the sentences ‘Sam knew it’ and ‘Paul knew that’.
In the first sentence the word ‘it’ indicated an incident that took place sometime back. However in the second sentence the word ‘that’ indicated something that took place long time back.