你的理解不错,但是用在这题不太合适.
这道题的关键在于it指代的是什么.我们从题目可以知道,it指代的是Joe reading in the library yesterday,这实际上应该是一个完整的句子,但因为跟在感官动词see后面省略了主语之后的is;在英语代词中,只有it可以指代前面出现(或后面即将出现)的一句话,而this和that都没有这个功能.
例如:
-Joe has gone to China!
-I have known it.(指代Joe has gone to China)
It surprises me that this kind of thing should happen here!(指代this kind of thing should happen here这句话)