I often get confused with the reply ‘ that’s fine’.I exactly don’t know the situations that the answer is applicable.
You would respond to a question with "That's fine" when the question is about whether something is correct or acceptable. It's basically a way of saying that the speaker has no problem with what the questioner is asking about.
For example, you might respond with "That's fine" to any of these:
Would you like us to schedule a taxi for you for tomorrow morning?
I got Terry some new shoes for her birthday; do you think that's OK?
I'm sorry, but the earliest that Dr. Chandra can see you is 11 AM tomorrow; do you still want to make that appointment?