The word "THAT" is used to speak about something or someone specific and can be used to express distance. For example: "That chair there" compared to "This chair here". "That girl" or "That boy".
If the word THAT is not speaking about something specific, or the topic/subject is already understood (or can be understood by the sentence, it does not have to be in the sentence, but it can be used. For example:
"I understand the possibility of being accepted in this school is slim (small)".
"I understand that the possibility of being accepted in this school is slim (small)".
Una buena pregunta.