I like to think they all have a gland that makes them think they’re singing. Like in that Scrubs episode.

@PonyPon  
I think that was more leaning on the fourth wall than anything else.

@RaineV1  
Even when Shy brought it up later, asking if Dash wanted to sing about it again?

@Miss Shy  
I’d bet that the pet song was non-diegetic too, since Dash was in perfect rhythm with her, similar to how they are in the big musical numbers like At the Gala and Smile Smile Smile. It was likely both of them giving a condensed version of what happened to the viewers.

@RaineV1  
So the songs that were digestic that Fluttershy sang in were Evil Enchantress (Flutterguy version), Hush Now Quiet Now, Find a Pet, and every song in Filli Vanilli. Minus the last one, these were all songs that Fluttershy sang for a small audience.
 
It kinda makes sense that they didn’t fully catch on, although the Heart’s Warming Eve play stage fright scene really should have made something click for them.

@Background Pony #1A46  
Actually, there is an explaination. Most of the songs on the show are non-diegetic inserts. What’s a non-diegetic insert you ask? Simple, a non-diegetic insert is a film technique that combines a shot or a series of shots cut into a sequence, showing objects represented as being outside the space of the narrative. Put more simply, a non-diegetic insert is a scene that is outside the story world which is “inserted” into the story world. Diegetic could also refer to sound in media or film studies.
 
The times they broke out into song aren’t meant to be taken as a part of the story, simply a means to convery what’s happening to the viewer, nothing more. In other words, it’s a cartoon, don’t take everything literally.
 
Now then, the only time we’ve actually seen her performing for an audience in show, as oppose to performing for the viewer, was Hearth’s Warming Eve. And, it’s actually easier performing on a large stage in front of a faceless mob than it to perform infront of a smaller crowd where you can actually see the individual reactions of everyone watching you.

@Background Pony #AA0D
 
That’s about the best explanation I’ve heard for it.

@gittonsxv  
Well there was Hearth’s Warming Eve for the latter.

Well, there’s singing and then there’s a musical moment. The former is something that’s acknowledged as actually happening, the latter can have entire towns randomly joining as a choreographed supporting act for a song that someone randomly started singing out of nowhere about some personal issue they’re dealing with and not a single person will give a crap they did this afterwards. These moments effectively happen only for the audience.
 
Think of this as a plot hole, but really… * shrug *

A lot of issues could have easily been handled by switching it to Sweetie Belle. Who while she sang has never exactly performed in front of people with her singing.
 
That said while the plot hole is obvious, I don’t think it really detracts from the episode.

have we ever heard her sing on her own?  
or in front of a large crowed that is all looking directly at her?  
no?

I’ve heard just about every counterargument trying to defend this by now. It’s just too big a plot hole to ignore though. It’s like starring at Celestia’s backside. You can’t miss it.

@Draco_2k  

Equestria, the land of plots and plotholes.