Otavalo is a town of approximately 50,000 inhabitants and is a short just over two hour hop from Quitos Terminal Norte and a common staging post for those heading there from Colombia or those going in the other direction.
This is a bustling town famous for its wonderful indigenous Saturday market where literally hundreds of sellers descend on the town to sell everything from bows and arrows to hammocks and Llama skin boots. Its a feast for the senses on this day. There is a market in the Plaza de Ponchos daily but it is dwarfed by the Saturday megalith. The market has been held here for hundreds of years.
Most of the Otavalo hostels and other accommodations are near to the Plaza de Ponchos are there are many to choose from to suit all budgets. They tend to be quite expensive compared to what you would pay outside of Quito normally in Ecuador and prices rise at the weekends due to the market. It's probably a good idea to book ahead if you plan to arrive on a Friday. For those with cash to splash there are more expensive haciendas which are available out of town
The town is thriving and there is a good selection of restaurants, cafes, banks, crafts shops, designer label shops. Everything you need for a comfortable stay is here.
In addition to the market there are a variety of walks that you can do without a guide to nearby waterfalls and lagoons. These are not too strenuous and are only an hour or two long. Nightlife picks up on the weekend and the streets can be busy and the locals are friendly. There are festivals throughout the year and the Fiesta del Yamor is held at the end of August and is a colorful parade of floats and dancers and competitions.