¨It¨ is a pronoun. It is used to refer to non-gendered things or in some general statements. ¨That¨ is also a pronoun, but it refers to a specific thing. ¨I like it.¨ You like something that has been previously mentioned, where everyone is clear what is being spoken about. ¨I like that.¨ You like something new, that hadn't been previously mentioned. In short, ¨it¨ is used when everyone knows what you're talking about, and ¨that¨ is used when introducing a new concept or when wishing to talk about something specific. Gah, this is a horrid explanation. It's not something one thinks about when it's your native language. Hope I could help a little bit!

I think for the most part they are interchangeable so it would be correct in some sentences to say either. But in the sentence I just wrote above you would only use "it" and not "that". For example I could say when referring to a movie - "I went to see it" or I could say "I went to see that" . But if add the word movie in the sentence I would say that. "I went to see that movie" I would never say " I went to see it movie" I hope that helps.

If you are pointing at "it" (not only physically; any way of indicating the thing you mean), then you use "that".