Using both video microscopy of superparamagnetic colloidal particles confined in two dimensions and corresponding computer simulations of repulsive parallel dipoles, we study the formation of fluctuating orientational clusters and topological defects in the context of the KTHNY-like melting scenario under quenched disorder. We analyze cluster densities, average cluster sizes, and the population of noncluster particles, as well as the development of defects, as a function of the system temperature and disorder strength. In addition, the probability distribution of clustering and orientational order is presented. We find that the well-known disorder-induced widening of the hexatic phase can be traced back to the distinct development characteristics of clusters and defects along the melting transitions from the solid phase to the hexatic phase to the isotropic fluid.