It is a quotational device - the difference with "I said" is that it can include attitude and action as well, so you can say "I was like" then do a dance, and that means that you felt happy - or, literally, did a dance. It is very informal but actually I hear a lot of people use it who generally avoid slang, because there isn't anything else with quite the same meaning. I agree that it's very annoying to hear someone reporting a conversation "I was like.... and he was like.... and I was like.... and he was like.... I was like.... and he was like....". BUT when you need to convey more than just the words that were said, "I was like" has its uses...

Slang - and I hate it!! But it will eventually find its way into the Oxford English Dictionary, if it isn't there already! It usually means "I said", "I thought" etc. "I was like 'What?'" means "I said 'What?'" Some people use it all the time, even those in the public eye. Awful. Do yourself a favour and don't use it! :)

People use 'I was like...' to mean 'I said' or even 'I felt/thought'. So "He was like 'What's going on?" means 'He said: 'What's going on?' or "I was like 'wow!' " means that I was surprised or impressed.

Now let's see how this appears using the common gibberish which employs "like" for a descriptive: He was like; "Hello" and I was like, "Hello to you too." I was like, smiling and waiting to see if he would respond. He was like, asking if I was going to the party that everyone was so excited about. I was like; "I have been thinking about it. Are you going?" He was like; "I might go if I can find someone to go with." I was like, so surprised you know? That is when he really surprised me, saying like; "Would you like to go with me? Maybe we could have some dinner before?"' I was like, falling over! Suddenly, I was like; "He's charming!" It's like that, you know? Like, ...etc.

Doug writes well on this usage. It is illustrative of the inability of speakers to articulate a complete thought in their own language. It is better that you do not imitate the speech pattern. You can speak this way to describe a dialogue. He said hello to me. I answered in a cautious way, since I did not know him well, saying; "Hello to you too." I smiled, and waited to see if he would respond. He asked if I was going to the party that everyone was so excited about. I said; "I have been thinking about it. Are you going?" He told me that he would like to find someone to go with. That is when he really surprised me! He said; "Would you like to go with me? Maybe we could have some dinner before?" I nearly fell over! Suddenly, I realized I found him to be very charming!