To expand just a little on that last little bit... you have to listen to your gut. When the actor is really inhabiting his character, I feel it. The studio disappears for a moment and the character is there. It's a thrilling moment. When the actor is not inhabiting the role, I don't feel it. Part of the skill of directing is learning not to pretend you feel it when you don't.
Hearing what you're actually hearing, as opposed to what you want to hear, or what you fear hearing, is something children and dogs do instinctively, and teenagers and adults unlearn, and artists have to learn again. You have to remember to ask yourself, sometimes, "Did I really believe that?"
The other side of directing is figuring out what words to give the actor to help him or her get from where he or she is to where I want them to go. Sometimes it's just calling shenanigans on the delivery. "I didn't really believe that."
Or, with a trained actor, you can often shorthand it. You can say, "More anguish," knowing they have the tools (the "method") to get there on their own.
But best practices is giving the actor an adjustment in the form of an imaginative circumstance. I don't think I ever say, "Louder." Instead I say, "Okay, now project it a bit more, as if the person you're talking to is on the other side of the street." Or, “You need help, and there’s no one around!”
"Okay, but now, as if you know the person you're talking to. You're not only betrayed, you've been betrayed by your best friend."
"As if" are the most important two words in the director's toolkit. (See John Badham’s book on directing, I’ll Be In My Trailer.)
I can give a line reading, but when the actor is mimicking my delivery, it almost always comes out sounding hollow. I then have to say, “Okay, now make it your own.” If I have to give a line reading, I’ll try to use a paraphrase of the line rather than the words of the line themselves, and I won’t use a British accent; I’m trying to convey the emotion, not the delivery.
A believable performance isn't the same as a "realistic" performance. It's the emotional truth that carries the line. A big, stagey but emotionally truthful performance is believable. (I believe it's often called "opera.") A performance that mimics what a real person does, but doesn't convey the emotion behind it, won't convince the audience.
When the actor inhabits the character, it's amazing. A line you wrote fifteen minutes ago can catch you off guard and make you laugh as if you just heard it for the first time. When I laugh, I know the line's a keeper.