THAT'S FINE is used in contexts where the speaker doesn't care one way or the other- A: Do you want pasta for dinner? I was going to make steaks, but I didn't make it to the supermarket on time. B: That's fine. (=почему бы и нет, мне все равно)

A: Is anything the matter? B: No EVERYTHING is fine. (THAT is used to change the subject or refer to something different than what is under discussion. In this case, you could say "No, IT's fine," but EVERYTHING sounds much better here.)