Direct speech and reported (or indirect) speech are two ways of writing something that somebody has said. Depending on the type of writing and the effect they wish to create, writers can use either direct or reported speech.
Direct speech is used to say something exactly as somebody said it.
“Let’s go to the cinema,” said Martin.
“I love dogs!” I exclaimed.
“Are you guys ready to leave yet?” Dad asked.
As you can see, writers use direct speech all the time. However, there are times when you might want to write about something that somebody said without using an exact quote. You may be writing an article or one of your characters may be telling another what they overheard. An amusing (or dangerous) little plot point could be that they don’t report the original speaker’s words properly and the original meaning becomes lost.
On occasions such as these, writers can use reported or indirect speech.
Martin suggested that we go to the cinema.
I told him I loved dogs.
Dad asked them whether they were ready to leave.
The use of reported speech can also affect the way in which the reader responds to the statements. For instance, in the middle example (“I love dogs!”), direct speech allows the reader to understand the excitement of the speaker, but in the report example this excitement is lacking.
For more information on the differences between direct and reported speech (and how they work in different tenses in English), visit this website: Perfect English Grammar.