I will be visiting Madrid in the second week of August, and I was wondering if I need to make reservations to stay in a hostel. There are so many different ones to choose from, I feel a little overwhelmed trying to choose just one. Also, is there one part of the city that's good to stay in, or are the restaurants and nightlife pretty spread out? Any help offered would be great.

In the second week of August accomodation will be plentiful. If you dont want to reserve unseen, a good idea would be to pick out 3 or 4 places you like the look of and then turn up and have a look at a room before choosing your favourite. If you stick to the Sol/Santa Ana/Huertas areas there are 100,s of places to choose from at all prices ranges. One thing you will need is air-con as it will be in the 40degC range all the time. The bad news is a number of shops/bars/restaurants close for their holidays at this time of year as a lot of Madrillenos leave the heat of the city for the costas so it will be quieter on a night than at other times of the year. All the above is based on personal experience of a trip in August 2000.

Right on.
I think in August you should stay in the center since many places will be closed (imagine, it even just takes a few moments to find parking space! ), so if you went to a less lively area, it could be pretty dull.
Ummm....yes, in a way, the center might be quieter than usual at night on weekends, BUT less during the week since most people who do stay in town work a 'jornada intensiva', meaning only until 2:30-3PM, then go to the pool in the afternoon and go out most, if not EVERY night, to enjoy the much cooler night air (so do the tourists), and to make up for not being actually vacationing at the beach like most of their peers/family members!

I love spending at least part of August in Madrid!
The second week is great with the typical 'fiestas' of San Lorenzo and San Cayetano; on the 15th., there's the popular 'Virgen de La Paloma', Patron Saint of Madrid.

If you´re looking for a place to stay in Madrid, you should try Barbieri International Hostel. It´s 2 minutes away from Gran Via, 10 from Puerta del Sol and the museums are not far either. It´s cheap, clean and best of all (in August) they have air conditioning! www.barbierihostel.com