Quotation marks in English are used to set off parts of a sentence that represent quoted words.

While it’s true that there are exceptions – some writers don’t use quotation marks for parts of a sentence that aren’t actually spoken, for example, thus using them like other writers use italics or the lack of them.

Thus:

Mary said Hello.

is always incorrect.

So is:

Mary said. "Hello."

Which consists of two sentence fragments.

It should be:

Mary said, "Hello."

If you juggle the various pieces around, the same logic applies:

"Hello," Mary said.

"Hello," said Mary.

Both version are correct.

"Hello." Mary said.

"Hello." said Mary.

on the other hand, are both incorrect, having turned one coherent description into two sentence fragments each.

Even worse is:

"Hello." Said Mary.

But only because one compounds the error in punctuation by adding an error in capitalisation rules to the first mistake, a "two-for-the-price-of-one" solecism.

Optionally, and purely as a matter of style, some writers don’t use quotation marks to surround words that aren’t actually spoken aloud, but are rather only thought..

I won’t do that, thought Mary.

Some writers still want to set the thoughts off from the rest of the sentence in some manner, so may use italics:

I won’t do that, thought Mary.

whilst still others use both conventions at once:

"I won’t do that," thought Mary.

This is a matter of taste, not prescription. It really doesn’t matter what you do in these marginal situations, since the only firm portion of the rule is that spoken words should be set off in some manner, because we think of thoughts as being quite different to words.

We all know this in real life:

What a schmuck, Mary thought.

"What a schmuck," Mary said.

The first instance represents a private thought she can easily get away with, because thoughts are private.

The second instance represents "fighting words" that might well lead to an altercation of one sort or another.

Now there are a few variations on this theme available to the writer. James Joyce, for example, who actually lived in France for a while, became enamoured of so-called “French quotes,” one form of which looks something like this:

Mary said,
 — I won’t do that.

Note that the French language, having been invented by French people, is very inconsistent in its application of all the quotation rules. In fact, some people believe that French doesn’t actually have any rules for quotations, preferring to let confusion reign supreme. I personally think that this is a slight exaggeration, but then I do try to be kind.

http://en.wikipedia.org/wiki/International_variation_in_quotation_marks#French