Learn Croatian: Pazi, to je vruće! - Be careful, that is hot!

Pazi is the imperative (command) form for one person. It comes from the verb paziti (to pay attention, to watch out). For most verbs ending in -iti, you just drop the -ti to make the singular command. To warn a group of people or someone you address formally, you would add -te to make it pazite.

Does pazi literally mean "be careful"?

It is closer to "watch out" or "pay attention". When a Croatian wants to tell someone to be careful in a sudden situation, this is the most common word they use.

Why does the word for hot end in "-e" (vruće) here?

Adjectives must match the gender of the thing they describe. Here, it describes to (that), which acts as a neuter word. Because of this, the adjective gets the neuter ending -e. If you were warning someone about a masculine noun like čaj (tea), you would use vruć, and for a feminine noun like kava (coffee), you would use vruća.

Could I use the word toplo instead of vruće?

You could, but toplo means "warm", whereas vruće means "hot" (as in, hot enough to burn you). You usually only need to warn someone to watch out if something is vruće!