First, you have to make sure that conversation sounds natural. It has to be written in such a way that, if read aloud, it sounds like people are actually talking. A good test for that is to actually read it aloud. Also, get someone else to read it aloud. You happen to know exactly how they were supposed to talk, a second reader doesn't.
Here are a few tips that I've found useful for making natural sounding conversation:
Use contractions. Most people like to talk fast. They do not like to slow down to say each word individually. Unless it is a quirk for a particular character to say every word distinctly, use contractions.
Elliptical sentences. When you talk, much is understood. People don't like to be repetitious when they talk. When asked, "Where's the gum?" they won't answer "The gum is on the dresser," but simply, "on the dresser."
Have a variety. No two people have the same style of talking. Some people enunciate every word carefully and oversay everything. Other peeps say things fast as can, leave words out and don't hesitate t'slam words t'gether. Many people have a catchphrase or, like, says a word, like, over and, like, over, you know? If your character has an accent, some words will be spelled differently, such as Mom would be Mum with a British accent, and German speakers pronounce 'w' as 'v'.
Second, don't be afraid of the word said. He said this and she said that and they said something else at the same time. It might get monotonous to write it over and over. It even gets monotonous to read over and over. You may find yourself wanting to use another word, such as 'asked' or 'answered,' or 'retorted' or 'demanded' or maybe even 'yelled.' Now, there are times when such words are good or even necessary, but often said is just the best word for it.
Also, you can add to the word said. Perhaps he said something quickly, or bashfully, or slowly, or maybe he looked at his hands while he said it. Adding action to speech is a great idea.
Sometimes you can leave a tag off altogether. However, be careful with this, because it can confuse your readers as to who's talking. You might even get confused, and a scene such as the following may result:
“Um … which of us is saying what?”
“I think our author had better figure that out.”
“We have an author?”
“Let’s just end this scene before it gets any worse.”
This is a real scene that I have written when I was tired, had writer's block, and had forgotten to use tags to indicate who was saying what. It comes from my book Infiltration. Please heed this as a warning, and, unless you want your characters finding out about you, use speech tags. Also, use them for your readers sake. The last thing you want is a reader who is confused as to who's speaking.
You can also simply put an action with the speech such as: Julia smiled. "That would be a great idea!" Just make sure that there is a period after the action and not a comma.
Of course, the best way to learn how real conversation works is to actually listen to it. I'm not asking you to eavesdrop, but pay attention to when you're talking to people and when people are talking to you.
Now, that's all I have to say on this topic. If you have any comments or tips on it, feel free to comment and give your tip. If you have a request for me to write on, feel free to ask me to write on it!