Based on a two week trip to Baja California in 2001.
Baja California is mostly known for seedy Tijuana in the north and touristy Cabo San Lucas in the south. However, it is the central part of Baja California that is really beautiful. Only few tourists come here, because it's a pretty long bus ride down from Tijuana. I didn't mind the bus ride all, because Mexican buses are far more luxurious than Greyhound in the U.S.. You can even watch movies on the bus, or just enjoy the beautiful desert scenery.
If you need to stay overnight somewhere in the northern part of Baja California, stay in Ensenada rather than in Tijuana. The El Sauzal hostel just north of Ensenada is a great, well-run and homey hostel.
THE place to hang out in central Baja California is Ecomundo, a small slightly alternative community of a few palapas on a remote beach in the middle of nowhere (between Mulege and Loreto). You can have your own palapa with a view of the Sea of Cortez and its many islands, go seakayaking (and even see dolphins if you are lucky), walk around in the desert and look for ancient pictographs, and, most of all, just chill out. At the time of the whale migrations, the whole place gets superbusy. The rest of the year, it's quiet and peaceful. I was there in November/December which I thought was a perfect time to visit (not unbearably hot, but warm enough to live outside in the open palapas and enjoy the warm water of the sea). Stock up on groceries before heading to Ecomundo, because you will most likely end up staying longer than planned. The nicest beach in the area is Playa Escondida, the beach just next to Playa Ecomundo. There are also some palapas at Playa Escondida which are far less expensive than the ones at Ecomundo (however, sanitary facilities at Playa Escondida are very rudimentary). In any case, don't forget to bring a moscito net for those couple of hours at dusk and dawn when the little bastards can get a bit annoying.
Mulege is a very nice small town next to a beautiful palm oasis (not to be missed). Loreto is also very pretty and has a good tourist infrastructure (at least for the standards of isolated, sleepy central Baja California). For more information on places to visit in Baja, check out the Lonely Planet guide for Baja California.