Elrond39 said:It's = Contraction of "It" and "is"
Its = possessive, example: The dog's tail is wagging. Its tail is wagging.
I always liked "It's wagging its tail." Shows both uses rather clearly.
Other examples:
"The two gentlement went too far going to the fair."
"He was close to the door he had to close so he could change his clothes."
"I wasn't allowed to read that aloud."
"They're going over there to get their keys."