I told Jim not to shout.
I told Jim don't shout.
Could anyone possibly tell me what is the difference between these? And which one would you rather use?
The first is indirect discourse: it reports the content of what you said, not your actual words.
The second is direct discourse, reporting your actual words, and should be pointed with quotation marks:
To answer your second question: if I thought I had said something especially clever, I would quote it directly as in your second example. If I simply wanted someone to understand what I told him, I'd use the indirect example. Therefore, since I am a humble and self-effacing soul, I would prefer the usage in your first example. :)