It's
"It's" is a contraction. It is short for "it is" (or occasionally for "it has"). It's not a way to ascribe a property to some "it". Yes, I know that this would make sense given that the general rule for forming a possessive is to tack on "'s": fool's errand, brewer's yeast, horse's ass. "It's" is an exception to this rule, and I honestly apologize on behalf of the infuriating English language. I didn't invent this stupid rule, but it's hardwired into my brain like gender of nouns to French speakers.

Examples:

It's a small world, after all. It's a small world, after all. It's a small world, after all. It's a small world, after all.
You do the hokey pokey and you turn yourself around, that's what it's all about.
Well, it's been a long, been a long, been a long, been a long day.

Its
"Its" is a possessive pronoun. Its interpretation is something like "that which belongs to it", where "it" stands for some previously defined object. In the previous sentence, the object being referred to is the word "its", and the thing that belongs to it is its interpretation.

Examples:

He left it dead, and with its head he went galumphing back
Love rears its ugly head.

Using them correctly
With practice, it's easy to tell these two devilish words apart. To help you keep them separate, here are some handy tips:

* Try replacing your "it's" with "it is" in the sentence. If the sentence becomes obviously wrong, you probably meant to use "its". If it sounds okay, "it's" can stay.

Example: "Nothing can take it's place" can't be right, because "Nothing can take it is place" is nonsense. You probably mean "Nothing can take its place".
Example: "It's not easy being green". Well, "It is not easy" is right, so the original sentence is okay.

* Try replacing your "its" with "his" in the sentence. If it comes out sounding right, "its" can stay.

Example: "That's just its way of making friends" must be okay, because "That's just his way of making friends" is grammatical.

In general, "its" as a possessive is like "his". You wouldn't write "hi's", would you? Well, maybe you would if you were talking about something belonging to Hiram...

* Look at the word that follows "its" or "it's". A noun means that you want "its". An adjective probably indicates "it's". This isn't always true, but it's a half-decent rule of thumb.

Example: "The cat licks its tongue into the corners of the evening". "Tongue" is a noun. I probably don't mean "it is tongue", so I'll stick with "its".

apologies... the full URL didn't display properly. here it is:

http://canadianpress.google.com/article
/ALeqM5gZqSi5tDRxpGVgRZ5sXeKMzhADGg