Itu pensil dia = That is his pencil
(itu) is the first word and is not after a noun so it goes first (pensil dia) is a noun-possessive connection and so is always said together (and usually backwards).
Pensil itu miliknya = That pencil is his
(Pensil itu dia) is a noun-adjective-possessive and is said together and also usually said backwards (Gaun merah saya = my red dress).
This doesn't translate well with determinatives ( e.g. the, that, this) For example "Pensil itu miliknya" read last to first is close to "He [owns] that pencil".
I have owns in square quotes because the literal translation would be "He belongs to that pensil", but it's just that it doesn't translate grammatically.
Would you say that there is a meaningful distinction between the two in Indonesian?
I ask because there is none in English, so perhaps the significance is only in one direction (English->Indonesian), but I do not know enough Indonesian to know.
Thank you for the explanation! :D
There is no real distinction but understanding it will help you understand Indonesian speakers.
Plus there may be no real difference here but there are plenty of times where English sentences that seem to be pretty much the same have precedence.
To match the speaking style of the person you're talking to.
To follow up a point.
To repeat similar sentences, or to make sentences more unique.