Guys, it's inevitable. Your characters are going to have to talk. Some characters will talk more than others, but they all (with the exception of the baby brother and the dog) will move their mouths while forcing air through their vibrating vocal chords. Since we have no choice but to accept this fact, we may as well spend a bit of time talking about dialogue.
Why is dialogue important? While actions may speak louder than words, words can speak pretty darn loud. Dialogue is a key aspect of characterization. There's nothing I like better than reading a good conversation between two characters (currently I'm re-reading To Kill a Mockingbird by Harper Lee, and if you're looking for excellent, excellent dialogue, I strongly suggest you check that book out from your library).
My mom always tells me that "out of the overflow of the heart, the mouth speaks" (and yes, that would be from the Bible). It's so true. Dialogue can portray what your character is feeling in an interesting way. It can also tell us what your character doesn't want other people to know he's feeling. Sometimes, you can contrast what the character is feeling inside, or what the character is doing, with what he says. Or all three.
I hate writing dialogue. Can I just, like, not write it? Well yes, of course. You can do pretty much anything you want in fiction. There was one author - his name escapes me at the moment - who wrote multiple novels, and only 5,000 of all the words he ever published were dialogue. He was just really terrible at writing dialogue (no really, he was. Terrible), so he just said, "Forget it." Of course, it takes a very skilled writer to be able to pull off a story with 3-dimensional characters with so little dialogue. I don't suggest it.
How do I make all my characters sound different from each other? I don't know. What makes them different from each other? What does Jed notice that Lily doesn't? How does Lily judge people? Is Jed one of those people who says "like" all the time? Some people refer to their friends by name more than others - I say peoples' names more than anyone else I know. How educated is Jed? What's Lily's self-esteem status? Dialogue flows out of a character's specific personality, and sometimes you can add speech patterns just for the heck of it.
But be warned. There are limits to speech patterns. Written out, stutters are really a pain. It just... doesn't work well. Putting "you know" at the end of every sentence Jed says might be true to life, but it gets really redundant after a while. Know your speech patterns, but know your limits.
Just go around listening to the way people talk. You'll find what's annoying, what's not, what's unique, what everybody does, and little phrases that your friends use all the time. Most importantly, simply know your characters. Listen to what they have to say, don't tell them what to say. If they're all different, so then will their speech be.
How do I make my dialogue move the plot along? (rather than just rambling on about maple trees) We've all read bad dialogue. If you ask me, I say a lot of bad dialogue comes from people using their characters as little paper dolls to speed along to the climax of the story. So let me throw it out there: your characters are not your tools. They are your people, and just like it's rather heinous to string someone along just for your benefit, it's a pain in the necks of all your readers when you use your characters like screwdrivers.
"What have you learned?"
"Well, let me just blather on and on about all the pertinent information that the reader will need to know for the next 60 pages!"
That kind of thing. Don't do that. Characters talk about what they're interested in. Your characters will be interested in your plot (if you're doing anything right at all) because it affects them. Your characters will be interested in solving the mystery or killing the bad guy or delivering the cookies. So don't worry, your characters will say important things, and they won't spend too much time on the subject of maple trees. Again: know your characters, listen to them, and they'll tell you anything you and your readers need to know.
What about dialects? This is a tough question. If you've ever read Huckleberry Finn by Mark Twain, you know how strong dialects can be both a curse and a blessing. One of the main reasons I love that book is because of the way Huck narrates, and the way he views things. But let me tell you, those first couple chapters are really rough. It takes a lot of time for a reader to integrate himself into a dialect that strong. Here's an example from Huck Finn, spoken by a mostly-uneducated slave named Jim:
"Yes-en I's rich now, come to look at it. I owns mysef, en I's wuth eight hund'd dollars. I wisht I had de money, I wouldn' want no'."
It's hard. If you want to use a specific dialect, go for it, but remember the consequences, and remember that the more difficult the interpretation, the more you're alienating your readers - and remember, we're not all Mark Twain.
You're going to talk about punctuation, aren't you? You bet I am. I'll be honest, even if I'm reading a story on FictionPress that's fairly interesting, I give up if the dialogue is formatted incorrectly. Grammar-nazi, I know... Call it a pet peeve. So here goes. I shall instruct through example!
"I love you." she said.
"I love you." She said.
"I love you," She said.
"I hate you!" He said.
"You do?" She said.
"I love you," she said.
"I hate you!" he said.
"You do?" she said.
"And sometimes," he continued, "you don't format your dialogue correctly."
And while we're at it, let's talk a little bit about dialogue tags, the "he-said" "she-said" of your story. Your characters do not have to exclaim, inquire, taunt, cry, whimper, groan, snap, spit, or sob every time I turn around. I used to have a rule that I would not use "said" more than once on a single typed page, because I like fun verbs and I figured they were only spicing up my narration and my dialogue. But that's not quite how it works. Fun verbs generally only detract from your dialogue, and they're a bit amateurish. When you think about it, the reader isn't even paying attention to your verb. It's a vague, almost subconscious indicator of who's talking. Now I try to use no more than two or three fun verbs as dialogue tags per typed page, depending on how much dialogue there is. "Said," "asked," and "yelled" usually cover it, with "whispered" thrown in there in certain situations.
So there you have it. I've always loved writing dialogue, but I know that for a lot of people, it's one of the biggest curses of writing fiction. Well, it doesn't have to be. Above all else, sit back, close your eyes, and listen to your characters. They'll talk to you, and they'll say exactly what they need to say, and all you have to do is write it down.