'Free Indirect Discourse' or 'Free Indirect Style' is a peculiar method of narrative technique.
In this method of narration the essential qualities and features of first person direct speech are combined with the features of third person indirect speech.
1. Direct speech: He sat down on the floor and said, "what's the use of living!"
2. Indirect speech: He sat down on the floor and wondered what was the use of living.
3. Free Indirect Discourse: He sat down and wondered, what's the use of living.
Free Indirect Discourse is distinguished from Indirect speech by the absence of introductory expressions such as 'he said.'
Novelists use Free Indirect Discourse as a means of blurring the distinction between the voice and thoughts of the narrator and the voice and thoughts of their characters.
Jane Austen is famous for her use of the Free Indirect Discourse method of narration to reveal to her readers the thoughts, emotions and feelings of her characters.
In Jane Austen's "Persuasion" Ann and Lady Russell have to convince Sir Walter to rent out Kellynch Hall. Jane Austen reports how angrily Sir Walter reacted to their suggestion to rent out his ancestral home,
How Anne’s more rigid requisitions might have been taken, is of little consequence. Lady Russell’s had no success at all–could not be put up with–were not to be borne. ‘What! Every comfort of life knocked off! Journeys, London, servants, horses, table,–contractions and restrictions every where. To live no longer with the decencies even of a private gentleman! No, he would sooner quit Kellynch-hall at once, than remain in it on such disgraceful terms.’ Ch.2.
Jane Austen reports Sir Walter's angry reaction within inverted commas as she would the direct speech of Sir Walter but instead of using the first person singular pronoun 'I' she uses the third person singular 'he' which would be used only in indirect speech.
Please read the following article for a very detailed explanation of Jane Austen's use of Free Indirect Discourse in "Emma,"
Gunn, Daniel P.
Free Indirect Discourse and Narrative Authority in Emma
Narrative - Volume 12, Number 1, January 2004, pp. 35-54