We are planning to book a NiN tour through Fjord Tours (I know it's not the cheapest option, but I'm going to for convenience). We have an option of a 20 minute or 2.5 hour stop in Flam. The town looks to be mostly a tourist mecca/commercial center. Is a 2.5 hour stop worth it or better just to get on the boat to see the fjords?
What time of year? Last mid- July I also used Fjord Tours. Flam was as you describe/imagine, but I enjoyed a yogurt on the dock and a brief stroll- but on a pretty day there is a longer walk uphill I didn't have time for. Also, large cruise ships can definitely impact the small port area (you can check the schedule). If this will be your only fjord opportunity I would choose the shorter option, especially if cruise ship(s) are scheduled.
2.5 hour stop...you can walk around and there is a little walk/path up a hill that is lovely and the path isn't long, maybe a half hour walk
There is also a little beach where you can sit and enjoy the view. We were at the beach last July and it wasn't crowded at all. (The water is cold, though.)