Light power follows inverse square low. Inverse square low says: inverse-square law is any physical law stating that a specified physical intensity is inversely proportional to the square of the distance from the source of that physical quantity. Inverse square low can be represented by following equation:
Let's try to explain to you what is happening here, and how this reflex to your situation.
If you have light source, and if you stand one meter from it, power of light at that point is P. If you move, one meter away, power of light will be P/4 (not P/2). If you move tree meters from your source, light will be 9 times lower than the case when you were standing at one meter away from light source. Following picture is demonstrating same:
Your built in camera flash has its own power, which is sometimes quite enough to get good picture indoors. But, you put puffer on it, so you decreased light source power. If your subjects were too far from you, the power of light was too small, so you had to decrease your shutter speed, to get right picture. Because you decreased your shutter speed, you had blurred persons on your picture.
So my suggestion is, move up little closer to your subjects if you use puffer, and keep your shutter speed at 1/200 or 1/120 of the second. This way, your subjects are going to be frozen, and you will get sharp image.
If this don't help, you should think about buying external flash.