Accommodation
Hostels
Rede Nacional de Turismo Juvenil are the local Hostelling International affiliate. They run a quite extensive network of hostels around the country. In general these are cheap, and have all the basic facilities. They do not seem to be quite as strict about things like curfews in Portugal as in other countries, and they are quite cheap. There is still little in the way of atmosphere here however, with the guests often being mainly school parties, families and pensioners. In peak season be sure to book ahead, either online on by calling the hostel.
There are very few independent backpackers hostels in Portugal - they are only located Lisbon and Lagos at the moment. The ones that there are are suprisingly expensive, although they typically include free internet, and are all quite comfortable and welcoming.
The alternative is to stay in a pensione. Single rooms are quite cheap (often not much more than a backpackers hostel), and twin rooms could work out even cheaper. A few places even have shared dorms, or space to sleep on the roof, although you should not expect any facilities beyond a place to sleep if you take up this option.