The biggest difference between this and that is distance. This refers to objects that are physically close to the speaker, while that is used for things that are physically far from the speaker.
- This shirt is so colorful! (You are holding or pointing to a nearby shirt.)
- That shirt is so colorful! (The shirt is far away from you.)
This can also refer to new information the speaker is sharing.
- This taco is delicious. (A taco is currently being eaten.)
That can refer information the speaker and listener and listener have spoken about before.
- That taco was delicious. (The taco has already been eaten.)