Generally speaking, for a manuscript, you should use the No Spacing option in the Styles box up at the top of your Word document. Then you should double space the manuscript.
As for dialogue, it's actually pretty simple (at least at a basic level).
Keep actions and dialogue together.
Good Example: Joey slid down the hill. "Well, that was fun."
Bad Example: Joey slid down the hill. "Well, that was fun," Becky said.
Corrected Example: Joey slid down the hill.
"Well, that was fun," Becky said.
In the second example, you're shoving the actions of one character and the dialogue of another into the same paragraph. This is sloppy writing and can be difficult for the reader to decipher. By separating these into two paragraphs, you make it much clearer who is speaking.
Following from this, you should always make sure it's clear who's speaking. This is done through a combination of dialogue tags (Becky said), action tags (Joey slid down the hill), and character voice (that is, your characters should at times be distinctive enough to tell apart even without a tag).
Oh, and don't get fancy with dialogue tags. Said and asked are perfectly good dialogue tags (though some will argue against asked). An occasional use of a more creative dialogue tag is okay, usually to emphasize the way a character is speaking, but don't put them everywhere. We don't want your characters constantly screeching and barking and rasping.
Put a novel off your shelf and have a look at how it's done.
