'this is' is used when you are talking about something that is very close to you, that you can see, hear, touch, etc. If it were something further away, something you are pointing at for example, you should use 'that is'. 'it is' is used for talking about things in general, and the speakers must both know what you are talking about. E.g. [you are in a restaurant] "This is my favourite restaurant." [you are walking down the street and you point to it] "That is my favourite restaurant." - Have you been to Marco's Pizzaria? - Yes. It is my favourite restaurant.