Final answer:
The incorrect word 'it's' in the original sentence should be replaced with the possessive pronoun 'its' to correct the sentence.
Step-by-step explanation:
The incorrect word in the sentence "The Sweet Sugar Bakery in downtown Dover is known for it's decadent pastries and elaborate cakes." is 'it's'. The correct word should be 'its' without an apostrophe, as the context requires a possessive pronoun, not a contraction for 'it is'. Therefore, the fixed sentence is: "The Sweet Sugar Bakery in downtown Dover is known for its decadent pastries and elaborate cakes."