Why are indicators used only in the form of dilute solutions?
The most simple and general answer is: because we can! However, it may require explanation.

Indicators will always affect the observable of the solution they are measuring. For example, an acid-base indicator is an acid or a base itself (depending on the pH of the solution). It will take at least one indicator-equivalent of acid/base to protonate/deprotonate the indicator and induce the colour change. (Some indicators may even require two or more equivalents.) Until that full equivalent is supplied, we cannot witness the new colour. Thus, we want the indicator concentration to be as minute as possible because that will give us the lowest indicator error possible.

All other properties and effects of indicators are secondary to the major point above. For example, indicators are typically chosen to be very intensely coloured so that the colour may be observed even at very low concentrations; this allows us to reduce indicator loading and error and thereby increase accuracy.
Synthesising these indicators may be time-consuming and they may be expensive. This further strengthens our wish to use as little as possible.
The colour change of an indicator is ideally abrupt and strong, again meaning we can reduce the loading a lot.
And so on and so forth.

Thus, because we can use indicators at these low concentrations, we do.