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~Show, Don't Tell~ is the rule in storytelling, though books are able to get away with breaking that rule more than film and television can. That's because books have narration, which means that essentially anything that happens, the reader is being told about no matter what. When we're told in great detail what's happening in, say, an action scene, we're being "shown" the event. When we're simply told that the scene happened, we're being "told". In both cases, the scene is still indicated entirely with written narration.
Dialog, however, is different. When two or more characters are talking, we're expected to see exactly what they're saying. This is the literary equivalent of "showing" us the conversation. We know exactly what Alice and Bob say, and in our head, we can picture the conversation happening as clearly as if we were watching a movie or in the room with the characters.
Sometimes, however, authors decide they'd rather tell about the conversation than show the conversation directly. This is Informed Conversation.
Consider the differences between the following.
"Some people are just stupid," Alice said, as she hung up her coat.
"What brought that up?" Bob asked.
"When I was driving home," Alice said, "I saw a cop car right there kinda out in the open at a junction, and so I slowed down. But the guy behind me kept zipping right up to the point where he was practically tailgating me, and I saw the cop car pull right out and hit his lights."
"What?" Bob asked. "Was the cop car, like, hidden behind a bush or something?"
"No, it was right out in the open, real easy to see. No way you could have missed it. Broad daylight and everything."
Bob shook his head in amazement. "Wow, what a dumbass. That reminds me of when I saw some guy pull right in front of me so close I had to honk my horn, then he immediately got pulled over. Did he not notice the cop car right behind him? I didn't even know it was there myself until I saw the lights, but how'd he not look in his rear view mirror?! Some people are so dumb, like you said."
When Alice got home from work, she told Bob about how she spotted a police car out in the open waiting to pull over speeders, and slowed down to avoid it, but somehow the person behind her didn't notice and actually sped up to the point where he was tailgating her. The police car had pulled over the tailgater. Bob shook his head in amazement upon hearing the story, and related a story of his own, about the time a driver who happened to have a police car right behind him stupidly decided to pull right in front of Bob and immediately got pulled over.
Both are examples of ways a conversation can be shown in writing, but the direct conversation shows more personality, by showing exactly what's being said. Alice and Bob express personality through their reactions to what the other is saying, as well as their specific word choices and ways of phrasing things when relating their stories of bad drivers. If the dialog isn't shown, those elements of personality don't come out.
So why skip the dialog and just relate it? There's several reasons for it. Some writers consider is useful to distill a conversation only to what elements are most important to the story's plot, thus speeding up the story. Some conversations are redundant, and may relate to another character what the audience already knows - for example, if the story had been following Alice during the time that she's talking about, we would already know about her traffic experience, and some readers might not want to hear the story a second time (this variant is unique in that it is common outside of books as well, though typically with a fade in and out). Also, some writers may not trust in their ability to write convincing dialog.
Sometimes it's done mid-dialog to stop a conversation from going on forever. Real people sometimes have conversations that take well over 20 minutes! And even short conversations may also be characterized by lengthy, meandering narratives which can go in circles before coming to the point or frequent tangential switches from one topic to another, which may be difficult for an outside observer to follow. Not many want to read that, so the story may use Informed Conversation to tell what's being spoken about, then cut to only the most interesting or important bits of conversation to show. Or they may show the beginning of a conversation so that we can observe it, then mention in narration that the characters kept talking for a very long time. That way, if done right, readers get the benefit of seeing the characters come to life through interesting dialog, but at the same time, the story maintains its pace.
It can also be used to indicate that profanity is used without quoting it.
On the other hand, if this trope is used too often or to skip past conversations readers may find interesting, it can make the story worse. Dialog, after all, is one of the biggest and easiest ways to show personality in a story, aside from first person narration, which is essentially a form of extra-long internal monologue. Therefore, while dialog can be done in excess and slow down a story, some amount of it is necessary to make the characters more relatable and have them come to life.