It’s all about verisimilitude, not realism. The audience needs to be able to immerse themselves in what’s going on it front of them, but sometimes that actually calls for an exaggerated approach.
As several posters have mentioned, actual human speech tends to be halting and confusing. Real people use run-on sentences, pepper their words with “ums” and “ahs,” change where they’re going mid-sentence, talk past each other, and are generally difficult for any third party to follow. The vast majority of film and TV writing, even today, eschews these attributes in favor of more flowing, rhythmic dialogue (often ironically referred to as “naturalistic”) designed to be easy for the audience to follow. There’s a continuum in how far this is taken, of course, ranging from the scripted awkwardness of the UK version of “The Office,” which more closely mimicks actual speech, to the hyper-literate, rapid-fire walk-and-talks of Aaron Sorkin’s shows, which are every bit as “unrealistic” as a classical Greek chorus.
The approach taken in the writing determines how the actors need to craft their performances. A fourth wall-breaking madcap comedy like “30 Rock” demands performances on the far side of “unreality,” where there are times when the characters are actually subsumed by their actors, who explicitly point out to the camera that everyone we’re watching is fake. Sorkin’s actors also talk in ways that do not remotely reflect realistic human speech, but because they also need to convey believable drama, their performances are, by design, more nuanced than Tina Fey’s performance of Liz Lemon. That doesn’t mean that Fey’s performance isn’t brilliant in its own way - in fact, it’s to her considerable credit that she is able to maintain the audience’s suspension of disbelief even after her character directly addresses them.
Joss Whedon’s characters are another interesting example. The “realism” of his shows varies quite a bit, although there is always an underlying wit that doesn’t line up with how real people talk and act. But two of his shows have far more “affected” dialogue than the others - specifically, “Buffy” and “Firefly.” In the former, the characters are written as “extra-articulate” teenagers, with vocal mannerisms reflecting the SoCal culture of the 90s. The latter is Whedon’s most stylized of all - the characters in speak a mix of Western drawl, Chinese exclamations, and science fiction futurespeak. What’s interesting is that neither “Buffy” nor “Firefly” feel less “believable” than Whedon’s more “grounded” shows, “Angel” and “Dollhouse.” The reasons for that are what I stated above: in all four shows, the writing and acting fit in near-perfect harmony. Whedon and his staff wrote dialogue for Mal and his motley crew that fit their space-western setting, and the actors embodied those roles, as written, with perfection.
A viewer whose primary criterion is truly “realism” should recoil at the confrontation between Mal and Crow at the end of “The Train Job,” but I’ve never seen anyone who didn’t respond to that scene with a combination of stunned amazement and glee. That tells me that, whatever people may say, their actual criteria for “good acting” is more complex, and has more to do with the verisimilitude of what they’re watching (as a combination of writing, acting, and direction) than the closeness with which the actors are mimicking actual human speech and behavior.
