1. Direct speech is called the Quoted speech. We mention the words as they are spoken by the speaker. Indirect speech is also the reported speech. We mention it as if we reporting what a person told a second person, to a third person.
2. The sentences direct speeches are usually shorter than the sentences in indirect speech.
3. The grammar and punctuation in both forms of speech is different. In direct speech, one uses a comma, inverted quotes and sentences with out nouns. The nouns are often implied and understood in direct speech. In indirect speech they are specified.
direct: Rama told Raavana, "Hey!, fight me".
indirect: Rama asked Raavana to fight him.
Teacher told the class, "I congratulate you all on your performance".
Teacher told the class that she congratulated them all on their performance.
4. One needs to apply grammar rules to convert a direct speech in to indirect speeches.
5. A direct speech is used to narrate a conversation or a speech. This has a better influence on the reader. An indirect speech is more like a story retold after some time. Direct speech is more interesting.
But a story requires a good combination of both forms of speeches.
6. Normally, we speak only in direct speech form. It is more natural. Indirect speech is not the natural form. It appears like a hearsay.