"That is his alligator."
Translation:Tiu estas lia aligatoro.
Maybe if you were looking at a line up of alligators and you asked the person next to you "which one is his alligator"? "tiu (that one, pointing) estas lia aligatoro".
Maybe if there was a single alligator in your front yard and you asked the same question - "tio estas lia (a previously discussed person, or that crazy guy who keeps alligators for pets) aligatoro.
Long story short: in almost all cases tiu precedes a noun. Tio doesn't. tiu aligatoro estas la mia. tio estas mia aligatoro.
It makes more sense if you think about the question you would ask and then the answer, kind of. For example, kio estas tio? means what is that?, so if someone asked "kio estas tio?" and pointed at the alligator, you would reply "Tio estas lia aligatoro". However, the question word tiu is used for more specific things. If you pointed at a person and asked "kiu estas tiu", you would get their name as an answer. Tiu, in this case, means this / that specific thing, so the sentence Duolingo is giving us means "That (specific thing) is his alligator", as opposed to if it started with tio meaning "That (generic think) is his alligator". That's how I see it, anyway.