How to Use That/Which
Like many of the finer points of grammar, the distinction between "that" and "which" often falls by the wayside in common usage. But you should know the difference between the two words, because it allows you to gracefully and succinctly communicate whether information is essential or nonessential to a sentence's meaning.
1 That vs. Which
Both "that" and "which" are used to connect clauses or pieces of a sentence. Use "that" if the clause it's connecting to the sentence is a critical part of the sentence's meaning. In the sentence "There's the dog that licked me yesterday," "licked me yesterday" is a critical part of the sentence's meaning, so using "that" is appropriate. If the clause is not an essential part of the sentence's meaning, use which. In the sentence "Michael's dog, which licked me yesterday, is a bull mastiff," the mention of the lick is only incidental to the real focus of the sentence -- that the dog is a bull mastiff. In that case, using "which" is correct.
2 When to Use Who Instead
Almost any time you discuss people, use "who" instead of "that" or "which." The only exception is when you discuss a group, in which case "that" is appropriate. For example: "The Girl Scout troop that sells the most cookies will win a prize."