Free indirect discourse is a narrative style that combines the voice of a third-person narrator with an individual character. This style is used throughout Hag-Seed as the narrator often delves into Felix's own thoughts. A useful example of free indirect discourse is: "Surely there was one. An unopened box, hidden somewhere under a rock, marked V for Vengeance. He didn't see clearly where he was going, but he had to trust that he was going somewhere" (59). Here, without explicitly stating it, the narrator has entered Felix's thought process, while still retaining her narrative authority as the primary storyteller.
Free indirect discourse is most often associated with Jane Austen, whose narrator has been interpreted as a character all its own in her novels. For Austen, free indirect discourse is significant because it allows readers to see how characters are perceiving their surroundings without necessarily painting those perceptions as accurate. This is especially important for Austenian novels, which are all about interpretation, perception, and reading other people in one's surroundings.
For Atwood, free indirect discourse works in much the same way. One of the staples of Felix's character as a protagonist is that he is not entirely sympathetic or reliable at all times. By using free indirect discourse to present his thoughts, Atwood develops a narrator that is able to provide skeptical distance from the world of the novel. Through the narrator, then, readers experience Felix's perception with an added layer of judgment and evaluation. Free indirect discourse, therefore, is a means by which Atwood can allow the reader to see Felix in multiple dimensions -- as a protagonist, to be sure, but a flawed one who still has room for growth and development.