Granada is a major tourist city, and has accommodations to suit every taste and budget. In fact, Granada has some of the best accommodations options in Nicaragua. The cheapest places in town offer dorm beds for as little as 75 C ($4) a night, but most hostels charge around 120 - 160 C ($6.70 - $9) for a bed. Services and amenities obviously vary with price, but nearly all hostels are equipped with free wifi.
The most popular spots, such as Hotel Oasis and The Bearded Monkey, tend to fill up fast so book ahead if your heart is set on staying here. Both are spectacularly equipped, though relatively expensive, budget options. There's also a popular hostel located atop Volcan Mombacho. Check the area listing for more details.
At the other end of the spectrum, hotels like Hotel Dario and Hotel Alhambra offer five-star comfort amidst beautiful settings for the luxury traveler. There are also quite a few good midrange options along Calle la Calzada. La Isletas has a few extremely dear hotels, but the vast majority of visitors see the islands as part of a day trip.