It's also a pretty comfortable and gringo-ready place - hostels are plenty and fun, food places have good variety and affordable prices, services and tours are readily available without much hassle. We stayed at La Chimenea and it was great for $20/night - big room with private bathroom, roof top kitchen and terrace with waterfall views, good breakfast options and sauna inside the hostel. For food - try Martinez street, highlights are vegetarian restaurant with really good fermented fruit drinks and Casa Hood (dishes from around the world + 4pm movies), try sandwich place on the corner of Ambato and Alfaro (reeealy good sandwiches), central market for fruits, smoothies and snacks, Cafe Arte for breakfast.
The main attraction of the town is Tungurahua volcano tours, Waterfalls route and probably the quads - the entire town is filled with quads renting places, so join the fun! Waterfalls route is probably something absolutely everyone does in Baños, but that doesn't make any less cool. It's 18km bike ride from Baños town towards Rio Verde village with stops on the way to enjoy the views and see the numerous waterfalls. The road is asphalted, and in most parts goes downhill - so it's a lot of speed and fun. The views are simply breathtaking - you are basically riding your bike along the cliffs of a huge canyon. There are numerous attractions along the road including ziplines - this is not just a flight above some trees, this in most places is a flight across the entire canyon - lots of fun! (it's really scary before you are let go, but once you go - it's an incredibly fun ride, not scary at all) And it' only $10 per person!
The 18km route ends in Rio Verde where you can hike to see the huge Devil's Cauldron waterfall. From there most people take a mini truck back to Baños (the system is very convenient - for $2 you load your bike into the truck and they take you uphill to Baños) We decided to go a bit further to see the next, less visited waterfall. It took A LOT of steps to climb down and up to the waterfall, but it was worth it - no people, just us relaxing on the huge boulders in the river.
You can take numerous hikes within 2-10km of the town as well, most of them are uphill, but you'll be rewarded with the views over Baños valley. After all the bike riding and hiking Baños offers a lot of SPA options (after all Baños is "baths") and most of hotels and hostels have a box sauna for $4/session - it's a wooden box with steam directed into it, you sit in it with only your head out and periodically get out for some cold water procedures. Looks something like this. A bit weird in the beginning, but ultimately really relaxing. If you have some strength left - take a 2km hike (or take a taxi) to El Salado - thats local hot springs with the water coming directly from the volcano. There are not many gringos who visit it, so you'll get a very authentic experience bathing like a local. Great value too - $3 for entrance to the pools.
Probably the most memorable thing we did in Baños was paragliding. If you want to do it - book in advance as it depends on the weather, so your flight might get postponed for several days if the weather is not right (too strong wind or rain) This experience costs $60 per person and it's probably the third most expensive thing we did after swimming with whale sharks in Mexico and rafting in Tena, but it's totally worth it. The price includes basic training for take off and landing, transportation to the take off spot about 1hr away from Tena, equipment, flight pilot and warm suit. The spot for take off is usually right in front of Tungurahua volcano, so not only you'll enjoy the paragliding itself, but you'll be doing it in the very front of a huge volcano!
Out of 7 people in our group I went the last one (funny story) so I got to fly during sunset - absolutely amazing experience! The funny story was about my weight, with 55kg I was the lightest person in the group and not even heavy enough to fly with my also-not-very-heavy pilot, so I went the last with the wind calming down (heavier person = stronger wind, lighter person = weaker wind) In addition to that, we had to cram up my back pack with everything we got with us - anything that will make me heavier. Needless to say this was hilarious. And even that didn't really help, as the wind was blowing us from side to side like feathers. I should be getting used to this kinds of things by now - before I got stuck on a zipline because I was not heavy enough to create inertia to take me to the other side, got blown away by wind this time, and sometime later during my surfing class I was politely informed that "these arms - no surfing arms" :D
All in all Baños is touristy and well groomed, but it's one of those places you won't regret you visited.