We say this when we have to settle for something less preferable than what we originally wanted, but have no other option: (A) I couldn't find any champagne, so I got you this white sparkling wine. Shall I return it? (B) No, it'll do! Actually WILL DO can be used with any noun, in any situation where you settle for something subpar: "I need something to serve the soup with. If you don't have a ladle, a big spoon'll do." It's very common to see this expression in combination with FOR NOW when you're ok with something for the time being: "The new job doesn't pay as much as I was hoping to get, but it'll do for now." Note that IT'LL DO is pronounced [ирылду́] by both Americans and Brits.