Paula said, "As you know, Alphonse, Murray is our own sainted father, and you and I lost him twenty years ago in a tragic windmill accident, right in front of your very eyes. And ever since, you have been deathly afraid of windmills, so much so that when you won a trip to Holland, you gave the ticket to me, your sister."
What's the problem? Well, of course Alphonse already knows his father's name and that Paula is his sister, and surely knows he himself is afraid of windmills. It sounds artificial, and it is, because of course Paula would never really say it that way. She'd never recite a bunch of info that her conversation partner already knows. It's a clumsy way to avoid putting exposition in the narrative (where it belongs-- that's one of the purposes of the non-dialogue parts).
Of course, we can do exposition (information conveyance) clumsily in narrative too. But while it might be clumsy, it won't be too inauthentic if it's not in the mouth of someone who would never say it.
How then can we convey to the reader the reason for Alphonse's terror of windmills? Or whatever the important info is there? The ticket to Holland? The name of their father? One question is, of course, what does the reader NEED to know to understand this scene and to build suspense or interest for what's to come? One problem I see a lot in exposition passages (in or out of dialogue) is that the information is thrust out indiscriminately, without consideration for what is the important piece of information, and without consideration of if this is the best time to tell it, or if maybe it should be presented only partially (to build suspense). Another aspect which is important especially in dialogue but also for character point of view is the character's motivation for telling/thinking this bit of info.
Let's start at the top. What's the important info here we want the reader to know? Maybe it's that ticket to Holland. (Don't ask me what the plot is where that's most important. This is just an example!) In that case, maybe all that other stuff isn't necessary right here. Maybe it is, but notice-- all that is ALPHONSE'S motivation, not Paula's. Paula didn't see the windmill accident and suffer lifelong trauma. What's Paula's motivation here? What does she want? Why is she bringing up this no-doubt painful subject? Once we know that, we can decide what about that paragraph of info is really necessary, and we can decide how best to convey it.
I generally use a mix of dialogue and narrative, in the point of view of one character. That is, the speaker says something, and the POV character (the speaker or listener) reacts mentally, maybe filling in some important bit of information, maybe translating the information (rightly or wrongly). And the dialogue doesn't have to say much-- just enough that the listener and speaker both have enough to know what this is about, and the reader gets some idea too. (It's important to cut the speech off -after- the speaker has said enough that the reader has at least some notion of what this is about.)
For example, let's say the whole point of this, Paula's motivation, is that she wants Alphonse to accept a gift of money that he needs but is too proud to accept. So she wants to remind him that she owes him because he gave her that trip to Holland. See how immediately this will transform that exposition? Now there's a reason for it to be there-- her desire to give back. Let's see:
Paula said, "Come on, Alphonse. You know I owe you. Remember that trip to Holland you gave me? You didn't--" Too late she remembered the reason for that generous gift, and how embarrassed Alphonse had been last year, confessing to his secret fear of windmills. She tried to cover up her lapse. "I mean, really. I owe you more than a thousand dollars for that."
Let's say you want to convey a bit more, maybe that Alphonse is her brother, which isn't apparent there (and presumably wasn't established before-- if it was, don't worry about it now). Well, in narrative, a bit of explication isn't all that noticeable, so you could amend a bit:
Paula said, "Come on, Alphonse. You know I owe you. Remember that trip to Holland you gave me? You didn't--" Too late she remembered the reason for that generous gift, and how embarrassed her brother had been last year, confessing to his secret fear of windmills. She tried to cover up her lapse. "I mean, really. I owe you more than a thousand dollars for that."
It's one of those narrative conventions that a name can be replaced in dialogue with either the pronoun (he) or a simple descriptor that the character might actually use. We do think of our siblings as "my brother" or "my sister," so that wouldn't strike the reader as odd.
Notice that the exposition there is confined to just his fear, but notice that the addition of "secret" helps make this seem more important. No, I didn't talk about the tragic windmill accident... but now the reader is alerted to something about windmills. Suspense is all about making the reader anticipate something bad-- in this case, some secret event involving windmills that terrified Alphonse. Later maybe one or the other could mention or think about dear old Dad's tragic end.
Now what if I want to be in her POV, but convey that Alphonse is still reactive to this subject? Add her perception of his body language, like:
Paula said, "Come on, Alphonse. You know I owe you. Remember that trip to Holland you gave me? You didn't--" She saw her brother tense up, and too late she remembered the reason for that generous gift, and how embarrassed he had been last year, confessing to his secret fear of windmills. She tried to cover up her lapse. "I mean, really. I owe you more than a thousand dollars for that."
One thing to keep in mind is that the POV character is the one that tells us what's going on (for example, she sees the body language of her brother). The POV character doesn't have to interpret this correctly (Alphonse could be tensing up because he heard a car door slam outside and thinks it's the police), but how she interprets it can be a way to slide in more information gracefully (that he'd confessed a fear of windmills).
Now watch how different it can be in Alphonse's POV. Why? Because then we know his motivation at this moment, and also we can see him interpret (or misinterpret) Paula's purpose here. (You know siblings. Always assuming the worst.)
Paula said, "Come on, Alphonse. You know I owe you. Remember that trip to Holland you gave me? You didn't-- I mean, really. I owe you more than a thousand dollars for that."
Alphonse studied his sister coldly. Of course she'd take advantage of his financial problems to remind him of his humiliating fear of windmills. Hell, maybe she was even trying to tell him how much she blamed him because, long ago, as a child, he wasn't able to keep their father from climbing that windmill. It would be just like her, pretending to be all generous and giving, then sticking in the icepick of memory and twisting it in his guts.
Little edits after the first draft can help a lot in subtly pointing things out to the reader. For example, I first had "his father" then changed it to "their father" so that the reader wouldn't wonder, if only for a moment, if they had different fathers.
There are no rules here, but good writers can adroitly manipulate narrative and dialogue to convey what they want to convey. But the speaker and POV character's motivations in imparting this info are key to doing this effectively. The reader doesn't have to know every bit of backstory, but she needs to know what information is important right now to the story and characters. However, in the deeper forms of narrative POV, it's essential to impart info subtly enough that it seems to be coming out authentically from the characters' speech, thought, action, and reaction, rather than from an imposing author.
It helps me to read the scenes of authors who do this well and see how they do it. Any suggestions for subtle authors and scenes?