How was the "Fly" episode directed?

Well, it's all CGI.

TL;DR

1. They used CG dots to create a fly. They tried for real flies, but they had to replace these with CG flies.

2. They researched about fly's movements, variations in speed and directions etc to make it easier to shot like a real fly.

Long read;

From this interview with Mat Beck,

fxg: The fly that seems to terrorize Walt and eventually lands on his glasses looks like it was fun to do. What was involved in making the fly shots possible?

Beck: Well, the fly is a main character of the piece so it plays a big role. All in all, the fly was in the show for about 20 minutes and was planned to be portrayed in different ways. We had a high-res CG model for the close-ups. For wider flying shots, we figured it could just be a flying CG dot – which turned out to be more trouble than we thought. For wider static shots, the original idea was to use practical flies made by a guy who made fishing flies. It was a really good looking fly, but it didn’t take long in a shot of the fly sitting there motionless for it to become apparent that it wasn’t a real fly. So we ended up digitally replacing most of the practical flies and doing the bulk of the flies as all-CG.

fxg: What kind of fly reference did you look to?

Beck: Ironically, what we couldn’t find reference for was how a fly moves around a room. Everybody knows how they do it, because we’ve all chased one around with a newspaper or a swatter. But no one that I know has actually gone and filmed it – I mean, why would you?! So we had to work it a little bit to make it move like a real fly does, not like a moth or miniature bat. Flies have certain ways that they move and there are certain variations in speed and direction. Once we got that down, that really helped.

fxg: How did you make the fly read on the screen?

Beck: So what was originally going to be not many instances of a CG fly became, instead, virtually every shot is now a CG fly. For the close-ups, we just had to make a great looking fly with fly-like behaviours. Flies actually do move like little insect-ey robots. They have very stereotypical behaviours. They roll their head around and groom with their legs. We also did some cool things with the wings where we would render the background with the fly’s body and then put the wings on top and refract the background, including the fly’s body, through it. When the wings moved, it gave more realism and helped your eyes go to it.