Only two letters, but that's fine! (5)
I believe the answer is:
dandy
'that's fine' is the definition.
(I've seen this before)
I cannot understand how the rest of the clue works.
Can you help me to learn more?
(Other definitions for dandy that I've seen before include "comic, 1937-2012" , "one of stylish ways" , "Stylish dresser" , "Fine for American" , "Fashionable fellow" .)