You don't have to use quotes. I don't know whether they work or not, but I've never used them.
No offense to anyone in here, but the quality of some of the information is sorely lacking. You can't mount a directory called "daggerfall" in DOSBox because of the length of the directory's name. In the DOS days it was an eight-character max, so "Daggerfall" in Windows would be "DAGGER~1" in DOS. This doesn't mean you can't name the directory "Daggerfall", but you have to adjust the name in DOS accordingly.
By default, it should install to "c:\dagger" anyway, so this shouldn't be an issue unless you change the install path.
I wouldn't mount the Daggerfall directory as the C drive, either, which is what "mount c c:\games\dagger" does. It might work, but it just seems kind of short-sighted to me. What if, by some chance, you wanted to quit Daggerfall and play another game? You'd have to exit DOSBox and re-mount everything the right way.
I'm feeling nice and patient, so I'll type out an example for you, and hopefully it will help.
Let's say you're installing Daggerfall from scratch in DOSBox. I'm going to assume you already have a directory in your C drive called "games", so we'll be using "C:\games". Your CD drive is probably "D", so we'll use that.
Starting DOSBox, you'd want to do this:
mount c c:\games -freesize 700mount d d:\ -t cdromd:install
This will mount your "C:\games" directory as your virtual C drive in DOSBox with a size of roughly 700 megabytes, mount your CD drive as "D:", switch to your D drive, and start the install program, respectively.
It should install to "c:\dagger". I'm pretty sure Daggerfall will go straight to the sound setup, so once that's set up it'll throw you back out to the prompt. It may even put you in the right directory (should be "c:\dagger\"). If not, go to the Daggerfall directory by typing:
c:cd dagger
Assuming you haven't exited out of DOSBox or something, your CD should still be mounted and you should be able to type in "fall", press Enter, and be playing Daggerfall.
If this works for you, you can save yourself time next time you want to play by copying the first two "mount" lines I posted and pasting them in the [autoexec] area in the "dosbox.conf" file (it'll be in the program area in the start menu). This will automatically mount your C and D drives every time you start DOSBox so you don't have to bother typing it out.
Hope this helps.