While I know technically the English language has a distinction because when there's a conflict between the possessive form and a contraction, the contraction wins. That is:
- Its is the possessive form of it—and this will presumably be followed by some form of noun spec or something.
- It's is short for "it is" or "it has" (as in "it's been years since...").
The rule of thumb I use to remember this is that it follows the same pattern as whose and who's, for which the correct use is much more obvious.
While technically I see why there's (ha ha) a distinction, I can't think of any case why it really needs to be there, because for every use of either construct, the meaning intended is usually (if not always) obvious from context. Case in point: many questions and answers written on the Stack Exchange network are written incorrectly, yet nobody notices or cares. (Usually in my case, I default to "it's" then realize I screwed up)
As a single word, I could see why it'd be ambiguous, but I don't see why in typical prose it would matter.
Is there a specific reason for this in earlier dialects of English, or specific cases where choosing the incorrect form leads to lack of understanding of a particular sentence?