This & that

When describing things and events, the most common words you’ll use are:

það (it; that)
þetta (this)

“This” points to things that are close to you and “that” points to things that are more distant.

Það er gott. (That’s good.) – Could be used to describe your opinion of some news you just heard.
Þetta er gott. (This is good.) – Could be used to describe your opinion of the food you’re eating.

Pronunciation

When these words are emphasized, their pronunciation follows the normal pronunciation rules:

The letter Ð is a very soft letter and it often disappears. “Það” is pronounced as [þaa] with a very long A.
Before a double T, you have to breathe out (exhale) a little bit before the T. “Þetta” is pronounced as [þe(h)ta].

However, if they aren’t emphasized, their pronunciation becomes extremely slurred. This applies to most common words in Icelandic such as here, she, and not.

When “það” isn’t emphasized, it’s pronounced as [ða]. The letter Þ has a tendency to become softer at the beginning of certain common words (in particular when they aren’t emphasized), often turning into an Ð sound, an H sound, or completely disappearing. Þ and Ð are already very similar sounds, the difference is that Ð is pronounced with the voice.

When “þetta” isn’t emphasized, it’s pronounced as [edda]. As above, the letter Þ has a tendency to become softer and in this case it has completely disappeared. But notice that the breathiness (exhalation) before the double T also disappeared. When a word is emphasized, the breathiness is absolutely vital — without it you won’t be understood. But, when a word isn’t emphasized, the breathiness isn’t of any importance and it should be skipped in when pronouncing the most common words.

See how the pronunciation changes depending on which word you emphasize:

Er þetta gott? [er þe(h)ta go(h)t] (Is this good?)
Er þetta gott? [er edda go(h)t] (Is this good?)

Native speakers are not aware that these words are pronounced differently, instead they simply perceive them as the same word. They will however not understand you particularly well if you use the wrong pronunciation.