We do not, of course, use punctuation in speech, so contractions and possessives do not cause any problems in speech. Writing is a different matter. Both native speakers and ESL speakers often have problems with things like apostrophe placement. Apostrophes are not used (except for misuse) in possessive pronouns. Thus, with their, theirs, his, her, hers, your, yours and its no apostrophe should ever be used. Ever.
Right: It's your turn.
Wrong: It's you're turn.
Wrong: Its your turn.
Wrong: Its you're turn.
The first sentence is "short" for: "It is time for the turn that belongs to you." (It can be clearly seen why people prefer the shorter sentence.)
Any questions? ;-)
What's the rule when we say 'I went to my grand ma's for dinnner' You know?
It's short for 'grandma's house'. ;-)
Re:
As TDOL noted, "grandma's" in that sentence is short for "grandmas' house." It is a form of ellipsis similar to "bachelor's" for "bachelor's degree".
What about "12 years experience"? Should there be an apostrophe after the s of years?
Technicaly there should, but it's increasingly common not to use it.
what about james's is it james' ?
and what about drivers? driver's or drivers' to signify ownership?