I am doing a diagramming workbook and have run into a sentence that I don't understand. The sentence is: What a light engine that is! The subject, according to my workbook, is that. I don't understand why. What rule makes it so?

"I am an actor."

I have an inflated ego, and say:
"What a marvellous actor I am." = I am a marvellous actor

Can you see that the pronoun " I " is the subject?

that : a pronoun used to identify a specific person or thing observed or heard by the speaker:
"That's his wife over there."

"that' in your sentence is a pronoun, and similarly, the subject.
That is a great light engine!
or
What a great light engine that is!