Listen to the way people talk to each other, then write like they speak.
This is exactly what one shouldn't do. Dialogue shouldn't be like real speech; it should represent it. Real speech is boring as hell to listen to.
And believe me, after transcribing a few hours of it, you will know that in your bones. That was really my intended point.
My major was linguistics, and I had one project where I had to map a half-hour of a four-party conversation onto a precise timeline, so that we could study the interruptions and overlaps in speaking, and the way the conversational turn-taking was negotiated. Oh. Dear. God.
But having said that...
One thing I've been told and always believed was that stories are not like real life, thus dialog is not like real conversation.
Real life is chaotic, without order, contains handfuls of mundane between real movement. Things happen without reason. For the most part, I think fiction readers aren't interested in that kind of transcription; they have their own lives to live like that.
Same with conversation. It gets clunky and mundane. A lot of informal speaking isn't as effective once it ends up on a page.
You would never want to depict dialog *exactly* like conversation. But if you pay attention to how real conversation works, you can add in elements -- not scads, just a few -- to make your conversation seem to the reader that it is very naturalistic, even though in reality it is just as stylized, just stylized differently than the the norm.
Most of the things that I do have to do with finding ways to convey speech rhythm and flow without overusing blunt instruments like ellipses or italics.
So I do use a lot of placeholder words to signal pauses and for, you know, emphasis.
"Or," she said, "you can do the same thing with the precise placement of dialog tags."
Sometimes a slight stammer can, can signal indecision. Or distress.
And if -- well, I find a false start can reveal a lot of things. Indecision followed by decisiveness, perhaps. Or the real speaker's real focus, followed by a phrasing that is more deceptive or, well, delicate.
I used to have a few other things that I did, but I've dropped them, mostly, because they were too much. And not as effective.
You wouldn't want to do things like that constantly. Maybe twice a page. Maybe a touch more in a pivotal scene. It takes practice and a good ear to get it right. Practice, you get by writing. A good ear? By listening (or reading) to the type of speech you want to portray.
Verisimilitude is key here. Not veracity.
QFE, because this is the most important thing I ever learned about writing.
But then, I would say that verisimilitude consists of the strategic deployment of veracity. If you know nothing about truth, it's awfully hard to mimic it effectively.