What's the difference between its and it's? This drives me potty!

When the word is 'it's' (with an apostrophe) you know that the word is meant to be 'it is', but they've just shortened it.

E.g: It's sunny - It is sunny.

Every book has its author NOT Ever book has it is author.

I hope I made sense :p

That's a spot on explanation by Sadida. To make things even more simple, you should never ever write "it's" in formal writing. So. if you're writing some official correspondence and you find yourself writing "it's", then you should expand it to "it is" (or, sometimes, "it has"). If you can't expand it to one of those, then you want "its" (without the apostrophe).