Esa no me gusta; prefiero la otra.

Esa means that one and is a demonstrative pronoun here. The noun is omitted because it is already understood from context.

For example, if you are looking at two shirts, Esa no me gusta means I don’t like that one.

In modern Spanish, the same forms often work as both:

• demonstrative adjectives: esa camisa = that shirt
• demonstrative pronouns: esa = that one

So esa is standing in for a feminine singular noun.

Because it refers to a feminine singular thing.

Spanish demonstratives must match the noun they refer to:

• este / esta = this
• ese / esa = that
• aquel / aquella = that over there

Examples:

• ese for a masculine noun: ese libro / that book
• esa for a feminine noun: esa chaqueta / that jacket

Eso is different: it refers to an idea, situation, or something unspecified, not usually to a specific named noun.

Because gustar works differently from to like in English.

Literally, me gusta is closer to:

• it pleases me
• it is pleasing to me

So:

• me = to me
• gusta = is pleasing

That is why Spanish says:

• Esa no me gusta = I don’t like that one

and not something built like English I like that.

Me is an indirect object pronoun, meaning to me.

In Esa no me gusta:

• esa = the thing being liked or not liked
• me = the person affected, to me
• gusta = is pleasing

Other examples:

• Te gusta = you like it / literally it pleases you
• Le gusta = he/she likes it / it pleases him/her

So me is essential because it shows who has the reaction.

Because the thing being referred to is singular: esa = that one.

With gustar, the verb agrees with the thing that is pleasing, not with the person.

So:

• Esa me gusta → one thing → gusta
• Esas me gustan → more than one thing → gustan

Compare:

• Me gusta la otra.
• Me gustan las otras.

Yes, No me gusta esa is also possible.

Both are grammatical, but the emphasis changes a little:

• Esa no me gusta puts esa first, so it highlights that one
• No me gusta esa starts with the negative statement and sounds slightly more neutral in some contexts

Starting with esa can feel a bit more contrastive, especially when comparing options:

• Esa no me gusta; prefiero la otra.

It is like saying:

• That one, I don’t like; I prefer the other one.

Prefiero means I prefer.

It comes from the verb preferir, which is an e → ie stem-changing verb in the present tense.

So:

• yo prefiero
• tú prefieres
• él/ella prefiere

But:

• nosotros preferimos
• vosotros preferís

That is why it is prefiero, not prefero.

La otra means the other one, referring to another feminine singular item.

Again, the noun is omitted because it is understood from context.

Examples:

• Prefiero la otra camisa = I prefer the other shirt
• Prefiero la otra = I prefer the other one

The article la shows that the missing noun is feminine singular.

Yes, but the meaning is slightly different.

• Prefiero la otra = I prefer the other one
  This usually means there are two clear options, and you prefer the second specific one.

• Prefiero otra = I prefer another one
  This can mean you want a different one, not necessarily the one already being compared.

So in your sentence, la otra is more natural because it clearly contrasts one option with the other.

The semicolon links two closely related ideas:

• Esa no me gusta
• prefiero la otra

It is stronger than a comma but weaker than a full stop.

In everyday writing, many people would also write:

• Esa no me gusta. Prefiero la otra.
• Esa no me gusta, prefiero la otra.

The semicolon simply shows a neat, clear connection between the two parts.

Normally, no.

Older Spanish often wrote accents to distinguish pronouns from adjectives:

• ésa vs esa
• aquél vs aquel

Modern standard spelling generally does not use those accents:

• esa
• aquel

So Esa no me gusta is the standard modern spelling.

The demonstratives, articles, and sometimes gustar would change to match the noun.

Masculine singular:

• Ese no me gusta; prefiero el otro.

Feminine plural:

• Esas no me gustan; prefiero las otras.

Masculine plural:

• Esos no me gustan; prefiero los otros.

Notice:

• gusta for singular
• gustan for plural

Yes, it sounds completely natural in Spain.

A speaker in Spain would very naturally say:

• Esa no me gusta; prefiero la otra.

It is a common kind of sentence when choosing between clothes, shoes, dishes, photos, apartments, and many other things. The structure is standard and everyday Spanish.