If you walk along from algar Seco Parque towards the beach you'll find a playground at the top of the cliffs by the church, just before the road dips down to the town. You can walk along the pavement, but I'd go on the boardwalk, fantastic views from there and it will take you to where they're building the new amphitheatre, and beyond it is the church and playground
The on site restaurant is great, lovely salads and club sandwiches for lunch, good in the evening too but only opens until about 9. You're also close to A Boneca, lots of steps down from the car park where the road ends but a unique location for a drink or a meal
You're in a great location, you can walk to all of the restaurants I've mentioned except Bella Vita, O Farol, O Stop at Centeanes beach and Rei Das Praias (but that's a drive for anyone)!
There are other places with live music, Taste often has a singer, as does A Vela but lots of people move towards the square in the evening for a nightcap or an ice cream, and to see what music/entertainment is on
Be prepared for the hills, bring comfy shoes or flip flops, but you can also get a taxi back up if necessary - there's a taxi rank by Smilers/Colombos, just by the square
Hope you have a great time - anything else just shout 