It is raining. In this sentence there is no reference to what 'it' is. Can this sentence stand alone as grammatically correct?
There is nothing wrong with sentences of this type. Grammar books give different names to it: the Oxford English Grammar by Sidney Greenbaum calls it prop it.
The pronoun it has four uses: referring, anticipatory, cleft and prop ... Prop it (or empty it) is used to fill the place of a required function - generally the subject - but has little or no meaning. It is particularly frequent in expressions referring to weather and time:
It's really hot in here
It's a bit late now
Prop it also occurs in functions other than as subject, including some idiomatic expressions:
She insisted on going it alone
I'm just taking it easy