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1. Good dialogue implies more then what is being said. Dialogue is a tool for characterization, because if character is action, talking is a free action.  (Heh.) What is being said not always as important as how it's being said.  A character who is constantly sarcastic, or quiet in the face of fury, or downright serene and gleeful on a battlefield says a lot about their character.  Dialogue can convey this easily.  Some dialogue can be straight and to-the-point, like "Swerve left to avoid the deer!" but when used as characterization you should always consider the A point and B point of your dialogue.  Consider point A to be the direct information that serves the story and the plot.  Consider point B as revealing your character's emotions, state of mind, or feelings about a particular thing.  The way someone says "This tea is hot!" can convey whether they are optimists, pessimists, a ditz, or just messing with you.  If you have multiple characters, a good exercise is to "ask" each of them a question and write down how each of them would respond.  (If all of them are like "yeah" and do so with a cheeky wink, maybe you need to look into making them a tad different from each other.) Characters who talk about their feelings out loud, like "I'm so very angry right now" are totally missing dialogue's point as a subtle characterization tool.  Dialogue has to be realistic, and unless you're an English matron berating her charges, you're not going to be saying that line.  Think about what you say and do when you're angry, or sad, or happy.  Unless you're in a therapist's office, you're not going to be saying I-statements.  If a character is sad, we should be able to discern that from the dialogue and the contest clues surrounding it.  Think of all the deflection behind "Whatever ..." or "I'm fine!"  When you start looking at the implications of dialogue, emotion gets a lot easier to render.

2. Dialogue is concise realism. I see way, waaaaaay too many first five pages where the characters get up, do crap, and talk about crap.  Their conversation about English muffins over English muffins has nothing at all to do with their vampire-staking, and we discover no other characterization about them other than they like English muffins.  I froth at the mouth at this stuff, because it is usually a shameless plug for the author to live vicariously through a Mary Sue and wish that they could wake up in a wonderful house with a wonderful bed with superpowers, and get to talk to all their friends about how great it is!  The same goes for any mundane scene that involves talking about school, or , really, anything at all and missing that the entire point of dialogue is to characterize.  Too many people put in non-words, too, like "ums", and "uhs" and ellipses "..." ad nauseum because "that's how real people talk!"  Well, I got news for you: characters are not real people.  Stories are not real events.  They echo and reflect real people and real events, resonating with their readers for that reason, but they are not real. Dialogue should convey information, give us insight into the character's background and emotional landscape, and upon doing that, MOVE ON.  Anything else is bound to be infodumping.  Phonetic spelling of accents is thin ice: you better do your research and do it right.  Even Mark Twain and Brian Jacques's use of that trick is considered excessive by some people.

3. Vocabulary can define or derail character. Has it been a while since I bashed Inheritance?  It feels like it has.  So here we go.  Eragon doesn't talk like a farm boy.  None of Paolini's characters talk any differently from any of his other characters, whether they be dwarf, human, or dragon.  They all apparently attended the same grammar school (where reading the same thesaurus must've been required) and have the exact same cultural background (really, it's just painfully obvious they're all written by the same author.)  This bugs me, because not only do Texans speak differently from New Englanders, but Londoners don't speak like people from Norwich! Going fifty miles in any direction from where you are in the world almost guarantees a change in dialect and accent.  Education, culture, and environment all affect word choice.  If your character is a peasant, they speak like a peasant, not like a nobleman who took elocution lessons.  If you character is a gangsta thug fluent in ebonics, he doesn't talk like a Harvard Linguistics professor.  And if you suddenly make him start talking like that after page 50, I'm calling bullshit and hurling your book across the room.  Diction is a vital tool for the author, in prose as well as in dialogue.  I personally am one of those walking thesaurus people in real life, because I'm a writer: I read and write a lot.  That doesn't mean that my teenage boy character Kae would use "crepuscular" to describe a sunset just because I know what it means.  If your character is wordy and erudite, expect those who aren't to have a "Huh?" reaction.  If your character is speaking a language that isn't his primary one, unless he's been speaking it fluently for ten to twenty years, do not make him use contractions, colloquialisms (An example: "That's made of win!" is an Internet/gamer colloquialism), or turns of phrase unique to his second language.  Character's word choice is so very important to make them believable; think of the words and phrases they would use in every situation.  Going to a place of transition, like a coffee shop, bus stop, or airport and listening to how people talk is a good exercise for figuring out how different people say the same thing.

4. Dialogue requires context. If you haven't taken the time to establish why things are important to your character, you can have the best dialogue in the world and have it mean absolutely nothing.  I recently read (ahem) the prologue of a self-published fantasy novel that gave no context whatsoever for the opening.  It was intended to be a highly-charged senate debate, with the heads of two bitterly conflicting countries outmaneuvering each other. Unfortunately, both characters spoke with overtly erudite vocabularies and sounded exactly the same.  On top of this, I had no idea who my protagonist was, who I was supposed to sympathize with, and ultimately, why I should care that evil dragon guy was trying to get into the fox guy's library. (As a testament to how poorly this was done, I found myself sympathizing with the dragon's argument, only to discover on the next page that he was the Designated Villain.)  The pages flunked about every first 5 pages test in the book, but there was a lot of dialogue.  I think a lot of people tend to think that dialogue is a saving throw of sorts; that instead of the author telling you something, it's okay if a character does it instead.  (In dialogue, this particular trick is referred to as "As You Know, Bob".)  An infodump is an infodump, whether the author is doing it or forcing his characters to at gunpoint.  Dialogue can be its own context, but you have to build on it.  Give a character a line.  Any line.  Like, say, "I don't care."  Fairly innocuous, right?  By itself, this is a forgettable piece of dialogue, a downright throwaway.  But give it context, like, say, hurling a table at a wall, kicking a kitten, or sobbing hysterically, and it takes on a whole different meaning.  Often some of the best dialogue is the kind that says one thing while the character does something the exact opposite.  (An actions speak louder than words type thing, which gets back to Character is Action.)  Most people who can't provide context for their dialogue tend to have really crappy dialogue.  They can't show their character sad, so that their dialogue provides a window into their grief, so instead they just tell us by having the character say "Boo hoo.  I am so sad."

5 Cursing is allowed, just not excessively so. I think most cursing in books suffers from the Tethercat Principle  tvtropes.org/pmwiki/pmwiki.php… .  On page 300, your character drops the F-bomb.  Go back to page 300, and there he is, still dropping the F-bomb.  Having said that, I'm not that big a prude when it comes to harsh language.  (Lewis Black is my favorite comedian, and I named my dog after the Pikers in Snatch.)  Nonetheless, overuse of bad language is lazy writing.  If the only way you can convey that your character is irritated, upset, or angry is by cursing, you make them look stupid and extremely uneducated.  If you've ever held a conversation with someone who curses every ten seconds, it really does a number on your perception of their intelligence.  There has to be a reason for the cursing to be appropriate. (In Black's case, it's part of his frustrated character bit, and in Snatch's case, it improves the comedic, Sophisticated-As-Hell-crook backdrop of the movie.)  You also have to consider your audience.  I've gotten in trouble with my SCBWI group for using "hell" and "damn" in YA books!  Like the teenagers readings it hadn't heard a thousand times worse.  Having said all that about cursing, there's nothing like an under reaction to throw your reader out of the books.  If someone's leg gets blown off, and they're screaming "Oh, darn!": it ain't gonna happen. Most of the time, cursing should be held off for pinnacles of emotional reaction: not anger, but fury, not sadness, but total grief.  Otherwise, it's not as effective.  Cursing reveals the base, raw, reactionary part of humanity.  If you're doing it every five seconds, eventually the impact wears off.  In addition to your own discretion, use accordingly in adult novels; sparingly in YA.