Welcome to Granada, Spain
Granada is my first response when people ask me where to go in Spain. It's a mix of the city, the outdoors, and the home of many universities to add in a young vibe and cheap eats. It was also my last stop in Spain before leaving for Bratislava.
The Alahambra is a UNESCO World Heritage sight and Granada's main attraction. One of the best things to do to admire it from afar is to walk uphill to one of the many viewpoints in town. To visit and go inside the entire structure, you must buy a ticket. These sell out very quickly so you much purchase in advance. Personally, I did not buy a ticket and was satisfied with walking along the grounds on the outside.
Food is cheap here! It is a college area so great deals are easy to find. Order a beer at a tapas bar and it comes with a small plate. Eating tapas is the best way to eat on a budget both here and in Spain in general. Granada also has a lot of Arab influence so there are many teahouses where you can smoke hookah and drink tea.
Beer: Try Alahambra 1925 (green bottle), brewed in Granada.
Before Couchsurfing, I spent one night at El Granado. This hostel was incredibly nice and I highly recommend it even having only stayed one night. There is a large, modern kitchen area free for guest use as well as an outside patio to sit and talk with other travelers. My room was spotless and included very large wooden lockers for each guest.