Okay I'm German.
Das ist meine Schwester = That is my sister.
Also use 'Das' for 'this'. The literal translation for 'this' is 'dies' in German, but we often times say Das instead of Dies.
Sie ist meine Schwester =She is my sister
The use is exactly the same as in English I would say.
Let's say you talk to somebody and you tell him blablabla Stephanie blablabla Stephanie..
After some time the other guy would ask Who is Stephanie? And you would either answer 'meine Schwester' or 'sie ist meine Schwester.
If Stephanie has not been any topic so far, and the other person also does not know her and suddenly Stephanie appears next to you, you would say 'and btw, Das ist meine Schwester'.
Really use it exactly as you would use 'that/this is my sister' vs 'she is my sister' in English. I think you will be right in 100% of the cases.