Backpackers paradise, great to relax, lots of pasteries and pizza :) We stayed in La Liberdad Hostel ($US6/dorm and $US10-14/room) with kitchen, free wi-fi, 4 computers, free salsa classes, hammocks, close to central park. Spend some time looking for a hostel, there're plenty of them. In the "tourists street" you find great food a bit expensive but worth it, also cocktail discounts like buy one get one for C40. Nice places to visit out the town: Laguna de Apoyo (Tour or on your own), Masaya Market and inside the town: Granada Beach, Pinatas Taller, Old Train Station, Tour to the volcano, Tour to the coffee plantation, Free Cacao Museum with All you can Eat Breakfast ($US7). Rent a bike and cycle around, bring a lot of water and snacks.
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