In English we have the following subject pronouns: I, you, he/she/it, we, you, they.
Together with the verb «to be» we have the following conjugation:
I am (I'm), you are (you're), he/she/it is (he's/she's/it's), we are (we're), you are (you're), they are (they're).
So IT'S means IT IS.
«The sky is cloudy today. It's going to rain».
We use ITS as a possessive adjective
Possessive adjectives are MY, YOUR, HIS/HER/ITS, OUR, YOUR, THEIR.
«My city is small. Its population is about 1,200».