Often we need dialect to give us a picture of the person that is being portrayed. It is a useful tool in that it helps us paint a clearer picture of the person than describing him or her could ever do.
How much dialect should we use? I say just a bit here and there. If your reader has to stop reading to decipher the dialect then you might lose him or her. You never want to jump your reader out of the story. You want to write a book that keeps your reader up all night to finish it.
It helps to be familiar with the dialect you are portraying. The use of slang will help in your dialogue portray your character. For instance my mom used to say things like "bleeding like a sieve." Granted it sounded more like "bleeden like a sĭve." So if you are in a rural setting throw in some favorite slang, but don't forget that your reader may not be used to hearing this, so be sparse in your use of dialect.
I think the only place one should use dialect is in your dialogue, though I understand that different areas have different speech patterns that effect writing and this is okay, but it helps to be familiar with the areas/people you are writing about.
Reading works like you want to create will help you out a great deal. You can decide what works and what doesn't while reading others work, so you can try not to do what bothered you. Here is a blog post on writing dialect, Inspiration for Writers, and the RWA has this article on dialect.
I found an article from the New York Times by John Clark that says, "No, no; missspelling doesn't make a dialect; it is men and women who make dialect either a dispisable clatter or a delight as a sprig of thyme from the home garden."
So, whether you are writing dialogue for baby chicks or us South Eastern Ohioans, remember not everyone will understand us. I know when I first moved to Chillicothe after growing up as an Air Force brat, I had trouble understanding my cousins and even my mom, who slipped back into that dialect like it was a soft glove. When I was told we were going on a picnic to tahalla (sounded like Valhalla), I didn't understand until I read the sign, Tar Hollow. I hope this will help clear up some of the confusion about writing in dialect.