Capri

Capri is pricey. Most people (including me) do it as a day trip from the Amalfi coast (Sorrento, Positano). There are plenty of daily boat excursions from either Sorrento or Positano or Naples. It includes visit to the blue grotto. Visiting the island of Capri takes a day trip basically. They don't have much of a beach so, unless you rent a boat or yacht, it's mostly strolling and enjoying the views.
Also on the coast there are many more things to do and see (Amalfi coast towns, Pompeii, Herculaneum etc.) I haven't been to the area in recent years, so I'll defer to others the suggestion of restaurants and hotels.

This site has lots of info about Capri. We visit on day trips from Sorrento and take picnic lunches with us, so no info on restos or lodgings I'm afraid. http://www.capri.net/

Jerry, Two evenings, maybe three, would be ample for a very relaxing visit to Capri. We stayed at the Hotel Quissiana on a group tour, and it was lovely. But, if I were to go back, I think we would choose Hotel Luna. The location of the Hotel Luna is fabulous, and they have a wonderful garden entry and balconies that look over the sea and the rocks that project from the sea (can't recall their names...starts with an F maybe). We walked down to Hotel Luna and asked if we could look in the lobby, and the staff was incredibly gracious. I've since looked on www.tripadvisor, and the reviews are favorable. The Quissiana was tops, too, but the location was just not as perfect. Things to do: we didn't visit the Blue Grotto, so I can't speak to that. But, grab a convertible taxi to tour the island (you'll be glad someone else is driving), also take the chairlift to the very top of Anacapri (views are incredible). If you like gardens, the Axel Munte (sp?) house in Anacapri has incredible gardens and view of the sea.....it's just a few
minutes' walk from where you catch the chairlift. Capri gets extremely crowded during the day (when day visitors and cruise shore excursions arrive). Late afternoon and early morning are more pleasant. I'd suggest taking the chairlift and visiting Anacapri mid-day to avoid the crowds in the city area, where it's basically stores and restaurants. If I find the name of the restaurant where we enjoyed lunch (on a little individual balcony with a table for two, looking down on the street below), I'll post it or send you a private message. Possibly your hotel could reserve a convertible taxi for your touring....it really is the way to go.

we stayed at El Gatto Blanco Hotel very central and convenient. i would recom min 2 nights min. Capri during the day is for it beauty and slow pace. Walk, gaze, take pics, enjoy la dolce vita. Nighttime espec in summer can be hopping and rarely does the party stop early. It is a gorgeous place to wander weather permitting.

How much time you spend on Capri depends on how much time you have for your entire trip. We spent 2 days and 2 nights on Capri, treating it as a mini vacation within our 14 day Italian trip. Anacapri and the chairlift up to Mount Solara was my favorite, really fun and amazing views. I'd skip the Blue Grotto, is touristy and over-rated. Instead I'd charter a private boat for a tour of the island. Also the walk to Villa Jovis was very fun and views great. Capri is very crowded during the day, because most people do it as a day trip. In the evening it is very different, quite peaceful and relaxing. There is plenty to do there for 2 or 3 days. But is your entire Italy vacation is only 7 days, I'd skip Capri and save it for another time.

I agree about skipping the Blue Grotto. Also, we did the Villa Jovis hike and REALLY enjoyed the hike and the site.

I will offer another opinion of the Blue Grotto. I have made the trip 4 times and I recommend it. On a sunny day the grotto is beautiful. If the sea is a bit rough, it is very amusing to watch the tourists try to maintain their dignity while transferring from the big motor boats into the small rowboats. Such fun!