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This is something that I've always been completely terrible at doing. Can anyone give me some tips? Hell, even a discussion amongst yourselves would be okay. I just need to get better at this!
member of the bull moose party
Welcome to (Town).
It's hard to come up with because generally, in the real world, you don't walk up to everybody and talk to 'em. In the older RPGs like FF 1-6, Grandia, etc., I remember that the majority of the NPCs tell you random (sometimes important) facts about the world they're in. Or they'll talk about things like the mayor/king of the town/city/village and his/her history or lineage. They'll also tell you different facts about the system mechanic like "Did you know if you hit (this) in battle it (does this)?" Sometimes they'll just talk about completely random things concerning themselves like "My daughter ate a bunch of chocolate and now I can't get her to calm down," or "I put these clothes out to dry this morning, bu they just refuse to air out."
I always love doing NPC dialogue! (Depending on the game) Medieval games are kind of dull because you have to make them say the usual crap:

Hi! How are you today (Hero's name) It's such a lovely day outside, maybe I'll go pick flowers at the (Insert meadow)

But in a modern comedy game:

Oh! It's you (Hero's name) You're about 7 days late for paying the rent you bum! When are you going to start getting a real job and earning some dough! Your useless you know that! Don't be surprised to find yourself locked out when you come home.

I love NPC dialogue. It's more of natural thing...just think of something that someone would say in a certain situation and there you go! ^^
I really have to be in a certain mood to do some NPC Dialogue.

Make sure NPCs know about the world/ Town they're living in. If some major event just happened, NPCs should talk about it too and act accordingly. Make some of them have two or three different things to say when you talk to them. Giving NPCs personality is even harder for me, instead of straight forward dialogue, if you enter a bar or a poor side of town, perhaps they speak more like this?

"Jus' get off me back will yer?"...Well I don't bloody know, Just make sure every NPC has the tone of your game, they have the ablity to make every area unique and memorable. That's quite important.
There are really many different approaches to this. The Squaresoft approach is just to make people say random things that may be occasionally useful (think of it like a dungeon with 15 chests and only 2 of them contain treasure). I just finished FFX and the dialogue for NPCs was largely irrelivant. Just random garbage about their sick kid (who you never help) or about how old they are.

I much prefer the Lunar way. Most of the dialogue in that game is good because there are interactions between the NPCs and the characters, or there is some sort relavance to their dialogue (history of the town or other characters), or it's just plain humourous.
I am tired of Earth. These people. I am tired of being caught in the tangle of their lives.
I like the KOTOR NPCs. People who say random shite (usually in reference to whatever evil has befallen them) just have a little bubble appear over their head. Plus, you can just run away before they are done talking.

NPCs that have something important to say bring up a much more detailed and larger dialog box.

It becomes a very quick and easy indicator of who is worth talking to without sacrificing the feel that you are walking in a populated world.
@Little Wing Guy: I agree with you on that. After a meteor destroys a neighboring town, you cant expect the NPCs to say the same shit they said when you enter the town. NPC's in my opinion should react to the environment around them. For me when it comes to NPC Dialogue I like to incorporate personalities as well as knowledge of the world around them. Sure some hobo isn't going to know much or care much about whats going on in the neighboring town, but I can assure you he will have something to say about whats going on in his town and his own life. I have always had my NPC's give hints about current events and such, merely to make them important. But the style I like to use for my games is one that is unique to games like Baulder Gate. You can ask a series of questions, but your Charisma give your more options, hell you can even intimidate people if your Reputation if high enough. With this NPCs are kind of meaningful to the game, rather than simply clutter charactersets that make a town look alive.
Writing NPC dialouge is always a drag, I usually just write the first thing that comes to mind. However, if you're really having a hard time, I would just write some facts about the characters who are from that town, or just write little facts about that town or something. That's what I try to do.
A good RPG Maker example would be Balmung Cycle. I suggest you take a look at how NPCs talk in that game.

Also, don't make too many NPCs in a town. The ones that are there need to provide useful information/sidequests, though.

Silver, you have no idea what you're talking about. ;)
I'd say the best thing for unimportant NPCs to go for is the Baldur's Gate way where they all say the same thing and you get the same information from them. Such as you go to random peasant #5 they say something like "hi" and the dialogue options are "rumours" and "thxbye". And then you have a set number of rumours they say randomly.
I'm terrible at this. I've avoided it mostly in my past games. But in my next one, I think I may just take the Grandia II/III approach and have the party talk back to the NPC you talk to. There were some interesting and funny conversations that the party had with NPCs in those games.
Hah, I actually like scripting out NPCs. Though, I have a problem in which many of them sometimes have better defined personality than my main characters. >.> It really isn't hard for me to find something for them to say, and I don't think I've ever done the "Welcome to LOLville" or "Did you know? On the menu you can..."

What I'm actually trying to do is have some of them develop through the course of the story as well, and thereby affect the player. For instance, in one town there's a seemingly insignificant waitress serving a couple drunk crewmen for a transport ship. If you talk to her she says something like "It would help I actually knew anything about wine..." and then goes back to staring at the wine cabinet idly. Boring right? However, later, after the player hijacks said ship, if you return to the town and talk to the old lady there, who, before, only complained about how much the crewmen eat, she now tells you that royal guards were dispatched to interrogate them on the disappearance of the ship, and that she was seized for further questioning. Set up for side-quest, yesyes.

Basically, attempting to show the events of the story affecting their lives in a way that makes them do more than complain about the meteor that crashed in to Rofl City down the road and how they're scared. And in turn have that affect the player.
It's like toothpicks against a tank
Making NPCs have fully scripted out conversations with many branches and stuff is neat and all... but I hope your game is small enough that you don't drive yourself insane making all these neat NPCs that the player may never even bother to talk to. (yeah yeah if the npcs are interesting the player will want to talk to them all etc.)
It's tough for me because I hate writing NPC dialog. And I always feel like any effort I put into NPCs is better spent on major characters.
Just for fun I made a small town that had about five different areas and between 7-12 NPC's per area, it was orginally meant as a way to just unleash my creative side but became like a mini side-quest type thing, like doing odd jobs for the locals.

Anyway there was one NPC who was like the town gossip. Everytime you spoke to one of the many NPC's the gossip would have something to say about that particular NPC.

The Gossip's event screen was a mess I might add, programing not being my thing but it's a great way to just unwind and make fun of people who annoy you.
I love doing NPC dialogue. Just remember to keep it short, they don't all have to direct you to something. For example In my game there's a little boy look'n off the docks, All's he says is " I'm look'n for pirates, that's what I want to be when I grow up." Then of course you have the one's that will take u somewhere, like " My, wife is in the house baking a pie, people say her pie's r the best in town" or something like that, then u may have to get her some ingredients, then her pie will give u an ability or something. Remember also, that the people your chatting up, don't know your character, so write it like that, there not going to spend all day talk'n to someone they don't know.
Uh, one lesson I learned with NPC dialogue is to be consistent. I'm playing Xenogears, and even though it's one of my favorite RPG's, the NPC dialogue frequently wavers from people being very realistic or informative, to straight up spewing nonsense.
author=Feldschlacht IV link=topic=1691.msg27456#msg27456 date=1218942164
Uh, one lesson I learned with NPC dialogue is to be consistent. I'm playing Xenogears, and even though it's one of my favorite RPG's, the NPC dialogue frequently wavers from people being very realistic or informative, to straight up spewing nonsense.

What does consistency mean? Not everyone is going to say the same thing. Or even same type of things.
On the game I'm working on, my plan is just to basically eliminate the traditional townie-NPC altogether. I've made the world much smaller so that basically everything takes place in the same city (I'm taking a page from Radiata Stories), and just coming up with a stable of characters with names, backstories, personalities, what have you. They are NPCs, but they're not the nameless decorative NPCs that appear in most games. Dialogue is a lot easier to write for characters than it is for props.

It seems to me that the biggest problem with NPC Dialogue in general is the compulsion to have those decorative NPCs (because a city has to have people in it) and come up with stuff for them to say. Even if you don't take my path, I think a lot of it can be dealt with by doing things like Final Fantasy XII, where you just can't talk to most NPCs, so the only ones that you have to write dialogue for are the ones that actually have something worth saying.
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