“It happens. Don't worry about it.”
Your coworker made a mistake at work and is really worried and upset about it. You say this to comfort him.
It happens. Don't worry about it.
You say "It happens." when someone is worried about something bad that they did, and you want them to stop worrying:
A: I'm so sorry I'm late.
B: No worries. It happens.
The phrase means something like, "Things like this happen to everyone sometimes."
When you're expressing the topic of someone's worries, make sure to use "about":
Are you worried about the economic situation?
I worry about things too much.
If you tell someone "Don't worry about it," it means "Don't worry about the thing we've been discussing."
In the example above, you use "it" to refer to the mistake that your coworker made. You can use "it" when you're talking about a situation or an event.
When you're talking about what the other person just said, you can use "that" instead:
A: I can't believe I made such a stupid mistake. Man, Kristen is going to flip out when she hears about this.
B: Aw, don't worry about that. She'll understand.