Good question as it reminded me of a favorite stop many years ago. The Christmas market in Sibiu, Romania. Always going to be special to me. Of the larger small towns, the one in Salzburg is supposed to be pretty nice.
Of course you have to do more than just the little ones, and which of the little ones is going to be good is more subjective than which of the larger ones is good or the best.
So why don’t you pick a really, really great big city first. Just google something like “Best Christmas Markets in Europe” and if you pick one that shows up on multiple lists or scores first the most often you will have a great base. Then look for surrounding towns and villages with markets.
I am fortunate as I live in a city with one of the markets that shows up on all of the lists. https://youtu.be/Z2LUUXfIPnQ?si=rIZ9xRLi4eg-hg37 So, from here the great smaller town markets would be:
Day Trips:
Szentendre,
Vác,
Esztergom,
Székesfehérvár,
Győr,
Obuda
Overnight Trips
Eger,
Pécs