We stayed in Aristo apartments in Psalidi which were very basic but the staff were very friendly.
The best restaurant in the area had to be Simo's Taverna. Their Stifado was the best on the island, in fact we said it was the best we'd ever tasted! My favourite was the Greek salad. The owners were brilliant - very friendly and when we watched Greece play Portugal at the football the atmosphere was fantastic. We met a family that had been going to the same apartments for the last three years and ate at Simo's every night so they must be doing something right!
We went into Kos Town a lot and as the beaches in Psalidi were not very good we took local buses to Tigaki, Kefalos and Paradise Beach which certainly lived up to its name.
Definitely go back again.