The words "lets" and "let's" are very commonly confused because they sound exactly the same. The difference exists only on paper, but the difference is an important one. The word "lets" is a verb, or action word, that means "to allow." The word "let's" is a contraction that means "let us." The word "lets" also has other meanings, while "let's" is only the contraction of "let us." The difference between "lets" and "let's" does not matter during verbal communication, as both words sound identical, but in written English, the difference between "lets" and "let's" is important and worth knowing.
A few examples help to clarify the difference between "lets" and "let's."
John lets the dog outside every morning.
Let's go to the supermarket for potato chips and soda.
In the first sentence, John is performing an action; he is letting the dog go outside, but he is doing it in the present tense. Since John is not the first person (I), or the second person (you), this means he is the third person (he, she, it, or a proper noun). The word "lets" is therefore the third person singular of the verb "let."
In the second sentence, the contraction, or shortened form, of the words "let us" is used. If you replace "let's" with the expanded form, the sentence reads like this:
Let us go to the supermarket for potatoes and chips.
The meaning does not change; the words are simply shortened to make the sentence flow better and to make the sentence easier to say out loud. The difference between "lets" and "let's" becomes apparent when you consider contractions in general, such as the following:
Did not contracts to didn't, as in "John didn't know where the dog went."
Could not contracts to couldn't, such as "I couldn't hear the speaker over all the background noise."
Should have contracts to should've, as in "Tracy should've brought money for the entrance fee."
It is contracts to it's. For example, "It's going to rain today, so I should bring my umbrella to work."
If you use the long form in any of the above examples, the meaning of the sentence remains the same, but the sentence is read differently — often more smoothly. Either the contracted form or the expanded form of the words are acceptable and correct to use in the sentence. The basic rule of thumb for remembering the difference between "lets" and "let's" is to only use "let's" if you intend to say "let us."