"Free indirect discourse" may sound all fancy, but it’s really just another way of saying that the narrative voice transfers between characters’ minds and the outside world of the novel with ease. Free indirect discourse is a narrative style that combines traditional third-person narrative with insights into a character’s mind that resemble the first person. For example, we often "hear" Stephen’s thoughts mediated by the narrator, and one instance can be found immediately following Stephen’s confession in Chapter Three. Instead of having markers of interiority and exteriority ("Stephen thought," "he wondered," etc.), we often slide smoothly from a moment of external description and action into Stephen’s thoughts, with no alerts from our narrator:
"The muddy streets were gay. He strode homeward, conscious of an invisible grace pervading and making light his limbs. In spite of all he had done it. He had confessed and God had pardoned him. His soul was made fair and holy once more, holy and happy. It would be beautiful to die if God so willed. It was beautiful to live in grace a life of peace and virtue and forbearance with others" (3.2.108).
It’s this style that allows Joyce to retain some distance from his character while also revealing his innermost workings to us. Instead of totally being immersed in Stephen’s personal experience, we have the privilege of moving between his inner thoughts and the narrator’s exterior, removed voice; this allows the author to toss in a little irony to shake things up occasionally. Even if Stephen is often humorless, it doesn’t mean that Joyce has to be.