I chose the top-rated hostel in Tripadvisor at that time: U Hostel. A 4-bed dorm room, shared bathroom costs €21-23 per night, depending if it is a weekday or a weekend.
The hostel has this bright lobby that welcomes guests. Our rooms were not yet ready when we arrived so we left our luggage and got some lunch first.
It comes with a small amount of breakfast. You can upgrade to a full breakfast for and additional (€3, I think) but don’t bother. You can go get your breakfast somewhere else too.
We took the metro from Madrid P. Atocha station. Some metro exits have no lifts. Bummer.
Have patience. Sometimes, the lobby is so full of that you have to patiently wait for your turn to talk to the receptionists. They were always very kind and accommodating with our requests and questions. There was a lady who recommended us really good restaurants around the area.
The floor had six shower stalls, six toilet stalls and six (or more I think) sinks. Stalls are marked if for male or female. Water pressure and hot water supply are both excellent.
Be warned that this hall will be flocked with girls painting their faces and doing their hair a couple of hours during pubcrawl nights. The hostel is famous for their pubcrawls that last until the wee hours of the morning. If that's your thing, you'll have the entire floor as your new friends.
The showers have ample room where you can hang and change your clothes. Before using the restroom, do check that there is toilet paper (sometimes, it runs out in the morning although they keep them well-stocked during the afternoon and evening).
The hostel has a drinking fountain per floor. I found this particularly convenient, I could save up on bottled water.
The hostel has a kitchen. You can put your food in the fridge and heat it up in the microwave. Label your food. Cooking is actually a good idea when you are travelling for an extended period of time. Cheaper, and your palate gets a break from all the oiliness of the food that you buy. Especially in Spain. The tapas can be “nakaksuya” (what’s the English of this?).
The rooms are well-lit and kept clean as well. Spacious too! Each bed has a personal plug (important!), reading lamp, and some shelf. The beds are also sturdy, so they don't squeak as much. The pillows and comforter are very comfy and cozy. Bring your own lock for the locker.
The movie room. We didn’t watch any movie, but I found this cozy. At night, the backpackers hang out here.
Wi-fi was weak and wonky during two afternoons and nights. I didn't like the "No food in the room" policy. I like munching at random hours.
Overall, a pretty decent hostel centrally located in Madrid.