Small towns in Northern Germany

We were in Warnemunde/Rostock on a recent Baltic cruise. That's where Germans go to "The Beach". We found the port very nice on the Saturday we were there. They had a big flea market going on in the town square with food booths and seafood sellers.

Look into towns along the "Fairy Tale Route" (including Hameln) and the "German Half-timbered House route" (including Celle, Wernigerode.) Goslar is also excellent.
Hameln
Hameln info

Here is a map of Germanys highlights according to Baedeker, Germanys most popular travel guide:
http://i.imgur.com/9BcKenL.jpg

As you can see, the Baltic coast (Ostsee in German) offers a lot. This region is actually Germanys most popular travel destination, mostly because of the beaches and spa towns of course, but there's a lot to see too. Many towns are completely preserved, and Lübeck, Wismar, Stralsund and Greifswald are World Heritage Sites. I would recommend to see at least two of them. Lübeck is by far the biggest and most important one, but Wismar and Stralsund are better preserved. You should also see the capital of the area, Schwerin, which not only offers a very picturesque fairytale castle but also a very pleasant old town surrounded by lakes.

Since you travel by car it's easy to visit the island and peninsulas too. Rügen is Germanys most beautiful island, and Binz on the east side is probably Germanys poshest and most beautiful seaside resort, with many examples of the local resort architecture. To the north of Binz is Prora, a huge Nazi structure.
On the east side of Rügen is Hiddensee, a car free island popular among artists, and to the east of Hiddensee is the Darss peninsula, which offers the West Beach, often billed as one of the 20 best beaches of the world, and many cute fishermens and captains houses.
Usedom island on the Polish border is basically a 40km long beach, with Peenemünde, the Nazi research center where von Braun developed the V2, at the northern end, and the "Imperial Spas" at the southern end.

We stayed for a few nights in Hannover and made some day trips from there. We stayed at the Mussman Hotel. It is right across the plaza from the main train station. We had the Bruckendame Suite. It was spectacular and very affordable considering the luxury (5-piece bathroom with a shower that has music and a light show) it provided (under 200E). The included breakfast was a solid way to begin our daily adventures. http://www.grandhotel.de/en/
We went to Bremen for an opera, and it is a city we would like to go back and explore. Lubeck was a pleasant place to walk around. Our favorite was Helgoland. The ferry ride was fun, and we really enjoyed hiking around the island. It is fascinating history and pretty spectacular topography. I believe they have places you can stay overnight as well. http://www.helgoland.de/en/welcome.html

You could spend 4-5 days exploring the wonderful island of Rügen alone. Binz would be the best choice for lodging, as it has the most hotels and restaurants.

I'd also recommend staying in Binz; the Hotel am Meer is excellent and also has a good restaurant.

Another vote for Stralsund, practically gateway to the island of Ruegen, and Binz! There is an old-fashioned railway on Ruegen, with smaller gauge than modern trains and you can take an excursion boat (Ruegen has white cliffs, just like Dover) and buy amber jewelry, amber being found on the shores of the Baltic. We went in late May, pre-season. The hotel was beautiful, included breakfast was ample, my room faced the beach promenade and I think it was under 70 Euro/night. We ate in several very nice restaurants. This early in the year it was not crowded at all. The weather was great but it was quite chilly on the water. I was glad my jacket had a hood.