I have not seen оно many times when reading Russian, but it seems like это is used in its place a lot. Does оно serve a separate purpose? Because it does mean "it" and it seems as though it is seldom used.
1) The words "он", "она" and "оно" are commonly used for referring to animate objects.
2) The words "этот", "эта", "это" are commonly used for referring to inanimate objects.
There are not so many neuter animate objects in the world around us. Even if biologically they are neuter, grammatically they are "masculine" or "feminine", such as "гермафродит" ("hermaphrodite") or "бактерия" ("bacteria"). Which is why "оно" is not that common.
However, 1) and 2) are not rules. This is just a common way of speaking. "Это" is a pointer and can be used for everything, for example:
"Что это такое?" - "Это моё домашнее животное".
"Оно" can substitute any neuter gender noun.
"Что это полотенце здесь делает?" - "Оно висит".
Probably, an important reason is that unlike 'it', оно can only refer to a noun (maybe with an adjective, etc.) and never to a whole extended expression, where это is used instead.
I'll buy you a diamond ring my friend if it makes you feel alright.
'It' can refer to both the fact of buying a ring and to that ring itself. In Russian, if you want to emphasize the fact of buying, you'd use это rather than оно:
Куплю тебе кольцо с бриллиантом, если тебя это [то, что я куплю тебе кольцо] порадует.
But in case that ring is explicitly referred to оно would be used instead:
Куплю тебе кольцо с бриллиантом, если оно [кольцо, которое у тебя появится] тебя порадует.
So it could partly explain why оно is used not as often as 'it'.
The difference has nothing to do with animatedness as the currently selected answer suggests.
The difference is in that оно is a personal pronoun while это and то are demonstrative pronouns.
The problem is that in English the pronoun "it" can be used in both demonstrative and personal roles. The pronoun "this" is used only when one wants to underline spatial proximity. In English:
What is it? - refers to the thing mentioned before
What is this? - refers to the thing near the speaker.
In both cases the meaning is demonstrative.
Оно (его,ему,его,им,о нём) is a personal pronoun, third person, singular, neuter (ОНО́).
1.Whereas it is used to denote animals and things in English, оно is used for any noun in the neuter,singular (things, animals like животное,насекомоe, people like лицо), animate and inanimate.
Я поискал письмо. Оно лежало на столе.(I looked for the letter.It was lying on the table).
2.Оно can be used like "dummy" it in fiction but in spoken Russian we either leave it out or say это instead. My favourite example from Gogol:
Оно конечно, Александр Македонский герой, но зачем же стулья ломать?(Гоголь).(It is obvious that Alexander Makedonsky is a hero but there's no reason to destroy furniture because of that.) Так оно и вышло. (And so it happened ) Вот оно что! (That's it!) Оно и видно.(That's clear) Оно и лучше.(It would be better like that). Оно хорошо бы, да нельзя.(It would be nice but it's impossible (prohibited).
There's also an idiom То-то и оно meaning the result of a deduction.
Вот то-то и оно, выходит, что с баронами фашисты заодно. Демьян Бедный.
There's still difficulty for students to determine the gender of a noun in Russian. Russian nouns have three genders: masculine, feminine, and neuter (neutral). Some nouns like father refer to physical gender. When we speak of other objects like pen, cup, house, there is no physical meaning attached to the gender. However you still have to know the gender. In Russian it is almost always possible to tell the gender of a noun by its spelling.
Here is how you can tell what the gender is from the dictionary form of the noun.
Look at the last letter of the word: 1. If it is a consonant, or “й”, the word is masculine. 2. If it is “а” or “я” it is feminine. 3. If it is “о” or “е” it is neuter 4. If it is a soft sign “ь” then it could be either masculine or feminine.
Кофе - (Coffee) - Is Masculine(exception) Some examples:
Masculine : паспорт (passport), документ (document),Хлеб (bread). Feminine : газета (newspaper), Россия (Russia) Neuter : здание (building), радио (radio), письмо (letter)