With a nickname like “The City of Flowers,” you'd expect Masaya to be a pleasant place. And generally, it doesn't disappoint. The place has a small-town friendliness about it, although with 150 000 people it's hardly a puebla.
Masaya is probably most famous for its Mercado de Artesanias, one of the largest and best handicraft markets in Central America. Many of the goods are produced locally. Beautifully painted pots and ceramics are likely to have come from Pueblos Blancos. Many of the smaller nearby communities are known for producing fine hardwood and wicker products, and you'll see several stalls devoted to these. Masaya itself is famous for producing excellent woven hammocks. If you've got the space to carry it, Viva heartily recommends picking one up.
If you're visiting between September and December, be sure to drop in on the San Jeronimo Festival. This colossal fiesta goes on for about three months, with parades, cultural expositions, and massive street parties. Celebrations wax and wane as the months go by, but tend to be biggest on Sundays.
The city is also a convenient launching point for trips to Volcan Masaya. Be sure to check on the volcano's status, as it remains very active. If things are quiet, you can actually descend into the cone to see lava bubbling down below. Try for a twilight tour, when the red-glowing magma is most impressive.
Many people choose to visit Masaya as a day trip from Granada and, practically speaking, its attractions can be taken in with a full-day's sightseeing. Volcan Masaya and Laguna de Apoyo each require separate trips, but these can also be done from Granada just as easily. Ultimately, it's up to you. Masaya is a pleasant place to spend a day or two, but if you're too comfortable in your Granada digs to want to move you can just see the city on the run.