I am by no means an expert on dialogue in particular or grammar/punctuation in general, but I have picked up some tips along the way that I would like to share.
1. Listen to people. If you want to write dialogue with good flow, using age/class/area etc appropriate words, particularly slang or accent, there are no better teachers than the people themselves. Listen to the conversations going on around you - on the bus, in the restaurant, hanging around outside the liquor store, etc - and think about it. What words are they using? What kind of things are they talking about? How might the accent look on the page?
2. Following on from above be careful that the words you put in the mouths of your characters are appropriate for that mouth, that person. There is nothing more frustrating than to read a young character using words or phrases their grandmother might have been familiar with but have never, realistically, entered their head. When was the last time you heard a teenager say things like "atop", "unseemly", or "uncouth"? Unless they're members of the aristocracy in which case they use ancient language all the time.
3. Make sure the words used are appropriate to the setting. You won't hear British characters using words like "diaper", "sidewalk" "store" or "trunk"(of a car). Think about who your character is, where they're from, how old they are and what social class they belong to.
4. Consider names carefully. During your eavesdropping...er...research, notice how many times people use the name of whoever they're speaking to. Not often. You can spend a whole day with someone and say their name no more than a handful of times, if at all, and usually when you're calling them. It's particularly frustrating to read dialogue that's full of names. If you have to rely on dialogue to convey who is speaking to whom then dialogue is not your main issue.
5. Free up on the grammar. We don't always speak correctly, so get into the head of the character and if the character would say something that is not grammatically correct then be true to them when you write them.
6. Some punctuation tips
If dialogue ends with the end of a sentence, punctuate it as if it was the end of a sentence then start a new one.
"It's raining outside." She picked up the umbrella to keep dry.
"Is it raining outside?" She picked up the umbrella to keep dry.
If dialogue does not end with the end of a sentence, punctuate it with a comma, and continue with no capital.
"It's raining outside," she said, picking up the umbrella.
"Is it raining outside," she asked and picked up the umbrella.
The same thing applies at the other end. If the dialogue continues afterwards, then think about whether a new sentence is required or whether the bit in the middle simply interrupts a sentence.
"It's raining outside," she said, picking up the umbrella, "and I really don't want to get wet."
"It's raining outside," she said, picking up the umbrella. "I really don't want to get wet."
Dialogue that ends with things such as ellipses and dashes do not have any punctuation after them whether they end a sentence or not.
"It's raining outside and..." She sighed and picked up the umbrella.
7. Action tags. Try to avoid "he said", "she said" and be careful about adverbs (the "ly" words). It actually hurt me to say that because I love adverbs, but it's true. Instead of saying things like, "It's raining outside," she said miserably, picking up the umbrella." use an action tag. An action tag is simply a short sentence conveying an action or emotion. "It's raining outside." She thrust out her bottom lip and gave me than hangdog expression. "I'd better take the umbrella."
Not particularly inspiring examples of dialogue I know, but I hope you get the idea and have a little bit more confidence about writing good dialogue.
Note: I am not particularly good at punctuation generally. I'm confident that the specific comments regarding dialogue are correct, as for the rest...maybe not so much.
