To create dialogue effectively you must be a great listener. Listen to people speak, listen to how things sound when spoken. You must however, also walk that line of making sure what you have written makes sense to the reader.

Dialogue helps the reader understand the plot, characters and atmosphere. It is necessary to allow the story to progress. It is a great tool to allow the reader into the life of the characters, to understand them to a much deeper degree. It also breaks up the monotony of description in a story.

I believe one of the most effective tools to use when writing dialogue is to read it aloud to yourself once you have created it. If it does not sound like something people would actually say in the situation they are in, then you should consider a careful edit. I have spoken to writers while making suggestions about their dialogue and I have said;
“Are you sure these people in this situation would speak like this to each other?”
Occasionally I will receive the response;
“I don’t know, I’ve never been in this situation, I think they would.” Or similar.
Straight away I know that this writer is not creating anything worthwhile. Once they say ‘I don’t know’ then I understand that they are not working hard enough to create this situation. You must know. The characters you create must be real enough in your mind that you would have no doubts. Even if you have not been in the situation, you must know the character well enough to know how they will react and what they will say.
Other errors that occur include having the author speak in a clichéd or superficial way. If their loved one had died and they respond with a blood curdling “Noooooo!” Is this how your character would respond or is this some memory of a favourite character in a movie or book you have read? Your character may be a quiet and dark person who would weep silently, perhaps they are a cruel heartless individual who would not care at all. Make sure you remain consistent and careful in your word choice.
Most of all, know how people speak, have an open ear and an open mind in all the things you do. How do people speak to each other in the street, what words choices, what tone of voice do they use? How does this differ to when they are at a party, at work or in a train at night? People and communication changes all the time depending on external and internal issues. They might be sad, frightened, lost, happy, they might be at work or at play. Your dialogue must carefully reflect these changes. Careful dialogue helps the reader move through your writing and most of all it adds realism and value to your work.

Happy writing.