This, That & That Over There

これ - means "this"
Refers to items in the possession of the speaker. "This is a phone."

それ - means "that"
Refers to items in the possession of the person you're talking to. "That (in your hand) is a phone."

あれ - means "that over there"
Refers to items that are away from both the speaker and the person you're speaking to. "That over there (away from both of us) is a phone."


Reference - Textfugu.com