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Colonia del Sacramento is in southwestern Uruguay , across from Buenos Aires on the northern shore of the Rio de la Plata.
Its strategic position and use as a smuggling port meant that its sovereignty was hotly contested and the city changed hands several times between Spain and Portugal and was for a while also part of Brazil before the independence of Uruguay. The city now has 25, inhabitants. Its old buildings and cobblestone streets preserved from the colonial days make it a popular destination for people from Buenos Aires on the opposite side of Rio de la Plata. It's especially popular as a weekend getaway for couples or as an attractive stop on a trip between Buenos Aires and Montevideo.
Walk east a bit and you'll be in the downtown area centro , including the bus and ferry terminals. Going northwest is a beachfront path rambla or costanera , taking you past residential areas, occasional hotels and restaurants, and views of the Rio de la Plata, for 4 km or so. Hotels and attractions are mostly concentrated in the historic district and downtown, aside from a few dotting the beach; the biggest tourist attraction outside of the compact, walkable central area is the old bullfighting ring Plaza de Toros , a little over 4 km northwest of downtown.
Some brochures and other tourism information is also available in the Casa Nacarello museum next to the main square. The Food, luggage storage, an ATM, and restrooms are available. There are almost hourly connections from Montevideo , with most buses leaving from Montevideo's Tres Cruces terminal. There are no two-way tickets, and if you are traveling to Colonia and back you will pay exactly as much as two single tickets.
Be careful with people telling you that all buses are booked out. This is in general not true, as you can also buy tickets on board if you don't have one when boarding the bus and there are places to stand on board if all the seats are full. A taxi is several times more expensive, and should probably be considered only in emergencies. For peace of mind, buy a bus ticket upfront to avoid rare disappointment - this would apply in the main tourist season in the Southern Hemisphere summer.