Note: The following is from the Chicago Manual of Style, and is for American writers. The Brits (and others) have different opinions about quotation marks.
There is not a hard and fast rule, as far as I can tell, about putting dialogue in paragraphs. It depends on the context. If the dialogue is a logical continuation of what came before, then it can be in the paragraph. If someone else speaks after that, it should be on the next line and indented. If the dialogue is more of a departure from what came before, then you should indent it.
Amy walked into the party. It took her three seconds to realize that her Victorian gown was going to stand out among the other guests, who were dressed in jeans or motorcycle leathers. “I should learn how to read an invitation correctly” she said to no one in particular.
“I like mutton sleeves,” said a tattooed woman in red leather who was standing behind her with a drink in her hand.
Always use double quotes in dialogue, unless you have a quote within a quote, in which case the quote within a quote has single quotation marks around it.
“Why did you call me ‘a motherfucking asshole’?”
Long paragraphs of dialogue, such as when Lord Winterberry finally declares his love for the Lady Ethelgrange after 300 pages of slowly building romantic tension, has a quote at the beginning of each paragraph of the long declaration, but no closing quotes until the end of the declaration.
“Lady Ethelgrange, it behooves me to be short. I love you more than the stars, more than the waterfall, more than the fleas on the royal dogs. I will love you until the sun falls from the sky, which will never happen, because it will probably go supernova first.
“Your eyes are blue jewels in your face. Your skin is soft as velvet. Your fingernails are perfect ovals of dead tissue. I love every hair on your head and under your arms. All the other ladies—and a few gentleman, I might add—mean nothing to me any more.
“You are the wind beneath my wings, the cobblestones beneath my carriage, the horseshoes beneath my hooves, the song in my heart, and the garlic smell on my breath. Will you marry me?”
(OK, stop gagging, I’m done now.)
According to the Chicago Manual of Style (13.41) unspoken words, such as thoughts, imagined dialogue, etc., can either be put in quotes or not as per the author preference (or house style of your publisher).
What do you say?
Fangs and Clause 
I say I want to know more about Amy’s party and the admirer of mutton-sleeves.
Keep going, please.
Clearly something interesting was about to happen. It’s yours if you want it.
Cool! Thanks! 🙂
Stay away from Jose Saramago. He doesn’t ever use quotation marks and rarely uses any punctuation at all. Of course, he was Portuguese, so he could ignore US style manuals. (But then, I think we all can ignore style manuals for creative writing.)
And if we’re Saramago, we can ignore the whole wide world.
I recently read that James Joyce did not, in his earliest work, use dialogue markers (quotation marks). He felt his writing was clear enough without it, and he also claimed it was up to the reader to decide when people were really talking. He had a hard time publishing because of this, but he stood his ground.
And then, of course, there’s Cormac McCarthy. But then Cormac also uses at least one word per page that I’ve never heard of, so there you go. Which reminds me that BLOOD MERIDIAN may be the best book I’ve ever read, and I need to go back and peek at it again.
Oh, maybe I’ll look at it too.
As a copyeditor, one of my goals is to keep things clear for the reader. However, I’ve never edited experimental fiction. Nor, as a reader or a writer, have I read any Joyce but “Portrait of an Artist as a Young Man.” You know, if you’re Joyce or Saramago, you can get away with it.
God, that sounded stuffy. All I mean to say is that is I’m not a copyeditor all the time. I can read without freaking out about dashes or whether the author is using quotes or not.
Thank you for the explanation.
Tessa Hadley uses a dash to denote dialogue
–
instead of quotation marks.
Also, the Brits call ” ” speech marks.
Speech marks? What if you’re quoting a book?
http://www.bbc.co.uk/learningzone/clips/speech-marks/747.html
It turns out that I can’t play the clip in the States. It says “Not available in your area.” What top secret grammar protocol are they hiding? What do they have against the great state of [redacted]?
It show’s them saying, with a British accent, “speech marks” for those things.
“Speech marks,” hunh? They do say strange things in the Commonwealth, don’t they? I don’t live in the UK, but in [country name redacted], they say “speech marks” too. And, they call apostrophes “inverted commas” (even if they don’t know how to use them). Parentheses are “brackets,” and brackets are “square brackets.” Of course, they’ve never heard of an em- or an en-. Everything is just a dash….
My students call apostrophes “comma things,” but that’s just because they don’t know any better.
Everyone knows it’s “comma thingies”. Geesh.
The confession was hilarious
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excuse me i wanna to ask how can i change ( for example a medical history to a paragraph ? please help me
I’m not exactly sure of your question. Do you mean you want to change a quote to a regular paragraph? Is it in a bigger piece of writing such as a paper or article?