Unfortunately, there are many ways that you can lose your audience. One of the most damaging is by confusing your reader. In some cases, it can also be one of the easiest problems to fix.
Editors and agents may read your manuscript with a critical eye, but readers read it because they expect to be entertained. If they're not entertained, if it's too much work to figure out, they'll not only become confused, they'll get angry. They'll feel betrayed. How dare the writer not make the story clear for them? They'll definitely put your story aside -- perhaps even hurl it at the wall in a fit of frustration -- and they'll very likely vow never to read anything written by you again.
You will have lost not only a reader, but the reader's faith in you as a storyteller.
When I'm reading a manuscript -- or less often, a published story or novel -- I shudder when I turn the page and see a long string of dialogue. This is often the sign of a "talking heads" story: no setting, no description, little action, just people talking talking talking to one another. This can be exhausting for a reader. Sometimes readers like to pause and "look around," to catch their breath.
Runaway dialogue is also a sign of a hyped-up writer. So caught up in the information they want to convey, so anxious to get it down -- but also remembering the show, don't tell rule -- they dump everything into an endless stream of dialogue without bothering to flesh out the scene into... well, into a story. Worse, they're often in such a hurry to get the information out of the characters' mouths that they don't bother identifying who is speaking for the reader. They neglect dialogue tags.
Dialogue tags are the "he said" and "Mary asked" identifiers you see with dialogue. They tell the reader who's speaking. "She said" is the simplest form. Action combined with dialogue is often an even more effective dialogue tag, because it shows; it gives a sense of place to the speech, or conveys action or an element of characterization:
Alibaba tightened a screw on the magic carpet. "There, that should fix it."
Here, we learn that Alibaba is a mechanically-inclined fellow; we learn he's living in a magical place where carpets do more than lie on the floor, and we know it's Alibaba talking, even without tacking on "he said." And, we learn all that without being told.
Yes, to fix runaway dialogue and, in this instance, avoid reader confusion, all you have to do is tag the dialogue with enough identifiers to keep the reader straight on who's speaking. Not every line of dialogue, mind you, or the tags will become intrusive, distracting. You just need enough to keep the reader from getting confused.
Now, before you go ahead and tack "he said" onto every other line in the conversation between Tom and Jerry, also realize that generic tags are just as bad as none at all. If you tag both Tom's and Jerry's lines simply with "he said," who's speaking? Which he? Put some thought into your tags. Better yet, get creative and convey action as well as identification. That, more than dialogue, is showing.
While we're on the topic (in a roundabout way) of character names, don't equate creativity with variety or, again, you'll confuse your reader. What do I mean? Let's say you've named one of your characters Dr. Buffy Sardinski (hey, it's original). The first time this character walks into your story, she's referred to as Buffy. Okay, your reader thinks, I know this character as Buffy.
A page later, one of your characters gets Buffy's attention by yelling, "Hey, Sardinski!" Your reader pauses. Who is Sardinski? Well, only Buffy and Character B are in this scene, so "Sardinski" must also be Buffy's name. Fine, the reader thinks, she's Buffy Sardinski.
Still later in the story, walk-on Character C is asking where "the doctor" is. Now your reader is thinking, Huh? Who is this doctor that C's looking for? Your reader is confused; he or she has pulled out of the story (eek! Bad thing to happen!) to figure this out. If the reader can't figure it out quickly, he'll get mad. End of your story!
"I can't call my protagonist just 'Buffy' throughout an entire novel!" you protest. Of course you can't -- although it's not a bad idea to pick one name and stick to it for a short story, where length is an issue. Go ahead and use "Buffy," "Sardinski," and "doctor" interchangeably -- but first familiarize the reader with the character's full name and title before chopping it up later on.
This introduction of a character's name doesn't have to be obvious, by the way. You don't have to start your character's introduction with the rather stiff "Dr. Buffy Sardinski walked into the office" unless that is the opening that best fits. Get creative. You could do something like this, and leave your reader familiar with the character's various names in the end, too:
Buffy felt a surge of pride as she hung the placard that read "Dr. B. Sardinski" on her office door.