Both it and this refer back to
you download any music from the site
and not to the phrase "you understand the legal implications" as you say.
The difference between the two sentences is fine, but your intuition is right, this does a more successful job than it, though the latter would not be grammatically incorrect.
Cambridge explains:
We use it to continue to refer to the topic we are already writing or speaking about:
- The heart is the central organ in our bodies. It is used to pump oxygen around the body through the bloodstream. (It refers back to The heart)
So in a way, it is meant not to draw too much attention to itself, but just ensures the flow of the sentence, the continuity of information on the subject. About this, Cambridge says:
We can use this to refer back to whole clauses and sentences and to previous parts of a text. This highlights the information referred to much more strongly than it. Writers often use this when a point or idea is to become an important part of the discussion that follows:
- More and more people are discovering that Tai Chi is one of the most valuable forms of exercise. This has led to a big demand for classes. (This refers back to a whole sentence.)
Do not forget that this is a demonstrative pronoun so it is deictic: it indicates, points out and identifies.
So rather than considering one or the other correct, I think it is a matter of matching the intention of your statement. Do you want to simply to avoid repetition and pass on to the next piece of information about the subject? Use it. Do you want to make the reader stop and focus on the particular action of do? Use this.
