First of all, Ushuaia is not the furthest south city in the world. It claims to be, and it could be depending on your definition. Puerto Williams, on the Chilean side of the Beagle Channel, is further south. It has about 3,000 people. It’s much less touristy than Ushuaia because it’s (a) smaller and (b) harder to get to. Puerto Williams also claims to be the furthest south city in the world. Punta Arenas (strangely) does too.
Side note: If you want to really get far south, go to Puerto Toro, Chile. Like Puerto Williams, it’s on the Isla de Navarino. Puerto Toro has about 30 permanent residents. It’s known for king crab fishing (though “known” might be a bit of a stretch). Apparently, there’s a ferry there once a month. You can get off and walk around while they collect garbage and drop off supplies. Just don’t miss the ferry back.
The overall ambiance of Ushuaia is kind of like a crappy ski town. The main street, San Martin, is super touristy. Everywhere else is patently un-touristy. Tourists are strange in this way. They go to the same places. They do the same things. They are very predictable.
One of the main hostels in Ushuaia is called Yakush. It has several dorm rooms, several private rooms, and several common areas. Mercedes, the main morning employee, stokes a warm atmosphere that’s ultra-conducive to meeting people. Go into the kitchen at any time and you’re likely to strike up a conversation and make a friend. There’s something about Ushuaia that lends itself to a kind of solidarity that exists being together in a relatively small town in a foreign country at the end of the world. It’s not hard to get to Ushuaia, but at the same time it’s not firmly on the backpacker trail in the way a place like Lima or Buenos Aires might be. This is also reflected in the “locals.” In most places where tourism is rife, the locals get jaded towards tourists. In Ushuaia this happens less, since most “locals” are transplants themselves. It’s hard to meet someone who was born, raised, and still lives in Ushuaia.
For dining options, try Bar de Pizzas half price night on Wednesdays. For lunch, try El Bambu, a vegetarian place just up the street from Hostel Yakush on Calle Piedrabuena. For coffee, there’s only one viable option: Xpresso. Xpresso serves above average coffee, which is a feat for Ushuaia. Some might even describe Xpresso’s coffee as “good.”
As far as things to do, most tourists do the following: the national park, the Beagle Channel, Laguna Esmeralda and the glacier. This is it. Everyone does the same thing, give or take a few items. Based on reviews, the Beagle Channel is not worth the 50 or so American dollars it costs for the boat ride. Seeing seals is not that cool. Seeing a lighthouse is not that cool. The national park is OK. It’s gorgeous. But it’s also infested with tons of shuttles full of tourists. Get off the main road and paths to discover the real magic of the park. The glacier, it seems, is cool. Laguna Esmeralda is definitely cool. Touristy, but cool. Not as many people as the national park. Striking in its beauty.
The best touristy activity you can do in Ushuaia, however, is go for a simple hike. The trail to Cerro del Medio leaves right from the edge of town and winds through forest alongside a stream and up above the treeline and into the mountains. Above the treeline, things get magical. One feels like one could be on Everest. If it’s not snowing down below, there’s a better chance it will be snowing up here. And the best part about the hike is that it’s free and you don’t need to take a taxi or bus to get there. You feel like you’re cheating.
If you get a chance, go to Ushuaia. It’s magical. It’s like a crappy Aspen full of cooler people. In other words: ideal.