German can use words formed by affixing da– or dar– to the beginning of a preposition in order to refer back to something. In its most basic usage, we usually translate a da– compound into English as a preposition followed by a pronoun.
Er hat einen Bleistift. Er schreibt damit.
He has a pencil. He is writing with it.
Hier ist ein Stuhl. Sie sitzt darauf.
Here is a chair. She is sitting on it.
Note that the form dar– is used when the preposition begins with a vowel.