Question

1. It is only five minutes' walk.
(What does 'it' mean?)

2. The bakery is five minutes' walk.
(Is it correct?)

Answer 1

1 - I imagine "it" is referring to whatever the destination is, the place to which someone is walking.

2 - yes, correct.

Answer 2

In your first sentence, "it" refers to a place that has been mentioned before, probably in the preceding sentence.

Example:

You'll like food at Hee-Jin's Kitchen Restaurant. It is only a five-minutes' walk.

In that sentence "it" refers to "Hee-Jin's Kitchen Restaurant.

For both sentences, we usually use the article "a" before "five-minutes' walk."

The bakery is a five-minutes' walk.