Long Explanation:
Whereas demonstrative adjectives modify a noun (e.g. este carro, this car) by explaining which car you are talking about, demonstrative pronouns replace a noun altogether (e.g. ése, that one).

• Mi bicicleta es mejor que aquélla.
  My bicycle is better than that one.

• Estas manzanas son mejores que aquéllas.
  These apples are better than those.

Demonstrative pronouns can also be used to express the former and the latter in English.

• Maria e Irma son chicas bonitas; ésta de México, aquélla de Guatemala.
  Mary and Irma are beautiful girls; the former from Mexico, the latter from Guatemala.

The Neuter form esto, eso, aquello[2] (this, that) have no plural in some contexts and they are used--

1. In reference to a whole sentence, as:

• El mercado del algodón está muy abatido; esto me desanima
  The cottonmarket is very flat; this disconcerts me.

2. In reference to something pointed at, without referring to what the
thing is, as:

• ¿Qué es eso?
  What is that? (thing there, whatever it may be.)

• Eso es ridículo.
  That (what you just said) is ridiculous.

Este, ese, aquel, etc., are accented when a stress is placed on them; Éste is also used for "the latter" and Aquél for "the former."[4]

Instead of ese, etc., aquel, etc., before que and de, the
definite article is generally used, as:

• El aumento de precio de hoy y el[5] que tuvimos ayer
  The increase in price to-day and that we had yesterday.

• La remesa anterior y la que haremos hoy
  The previous shipment and that we are sending to-day.

• El flete del aceite y el de los vinos
  The freight on oil, and that on wine.

• Mis documentos y los de mi jefe
  My documents and those of my chief (employer).

• Lo que (instead of "aquello que") escribo es la pura verdad
  That which (what) I write is the honest truth.

A preposition may precede que, as:

• ¿Qué libro es ese? Es en el que escribimos ayer.
  What book is that? It is that in which we wrote yesterday.

• ¿Qué carta quieres? A la que me referí ayer.
  What letter do you want? That to which I referred yesterday.

• ¿Qué plumas son estas? Son con las que yo escribía.
  What pens are these? They are those with which I wrote.