How to teach the importance of indentation
It has taken me a long time to get to a point where my students regularly indent properly.  I basically use a 4-part strategy.  (My work here in the context of AP Computer Science, so my examples are all in Java)

First, right from the beginning, and repeatedly, I talk about the two audiences for code: the computer and people.  These two audiences have completely different needs.  I come back to this theme with every new structure that I talk about, discussing coding style and norms with if statements, variable declarations (naming conventions), for loops (hey, why do we avoid break statements?), etc.

Second, I grade most of their labs right in front of them, code-interview style.  The first assignments are always quite simple, so I focus in on indentation, variable names, vertical space1, and the four Cs: clarity, clarity, clarity, and clarity.  

I talk through the clarity of their code in depth and inflict outrageous penalties for unclear code, but allow them to go back and refactor for a better grade with no penalty.  Rinse, lather, and repeat (as needed).  The first lab is always painfully time-intensive to go through, but by lab 3 or 4, much of the code (and the grading!) is fast, smooth, and clear.

Third, I provide a few monstrous code examples throughout the year like this:

int n = 17;
if (n &lt; 5)
if (n &gt; 10) System.out.print("A");
else System.out.print("B");
if (n &gt; 17)
if (n == 17) System.out.println("C");
else System.out.println("D");
else System.out.println("E");


It doesn't take a rocket scientist to figure out that poor indentation is the one and only reason that this code is so difficult to read and understand.  In case they miss it, I also reinforce this point verbally every time I give examples like this.

Fourth, the group work that I give requires them to have to provide code to each other, and make sense of what their peers have done.  Over time, they start enforcing norms on each other.

1 Vertical space, you ask?  Two reasons: first, because vertical space is used to separate ideas, like paragraphs, and second, because the very mention of this problem in their code shocks students immediately into thinking about how everything that they write helps to serve clarity.