Welcome to the forum Davypearson.
Harbour vs village, a very good question.
Harbour first
Pro: The harbour is stunningly beautiful. It has a very wide choice of places to eat and drink. The banks, and hence ATMs, are there. There's always something going on to watch, boats coming and going, people rushing about, that kind of thing, great for people-watching, there's a real buzz about the place. There are plenty of shopping opportunities if that's your thing. Taxi-boats leave the harbour to most of the beaches around the island. Some of the bars can get very lively in the evening, plenty of music and, if you're feeling brave, dancing!
Con: Depending on the type of holiday you like many of the items I've listed as 'pro' could also go here. Some people can find the harbour just a little bit
too busy. It is very touristy compared to the village. The traffic around the harbour can be intrusive. But the main disadvantage is probably the sudden influx of day trippers from Rhodes that descend on the harbour every day. They bring in much-needed money to the island economy but do tend to ruin the relative peace and quiet for a few hours.
The Village
Pro: It's peaceful. Very peaceful. It's much more Greek than the harbour. If you sit at a kafenion in the village you're more likely to be surrounded by Greeks discussing football (loudly, usually) than Rhodes day trippers complaining about the heat. There is more to explore, churches, the Castro, the seemingly endless maze of narrow lanes... Many of the most interesting island walks begin in the village. The views from high up in the village are wonderful. The village tends to be cooler than the harbour in the height of the season.
Con: The choice of places to eat and drink is limited but by no means bad, four restaurants/tavernas, six bars (some of which also serve food), a couple of cafes and probably some others I've forgotten. It's a walk (downhill) or taxi/bus ride to the nearest beach. There are few tourist shops (put this in the 'pro' list if you want
)
Where you choose to stay really depends on the type of holiday you prefer. If you like the idea of the buzz around the harbour, don't mind the music bars and want to take a taxi boat to different beaches each day then the harbour is for you. Alternatively, if your ideal holiday is to sit in a quiet Greek kafenion watching the villagers go about their daily lives then you'd probably prefer to stay in the village.
A couple of other things:
It isn't as black and white as I may have made it seem. You can find busy, sometimes noisy bars in the village and there are quiet corners around the harbour where you can escape the hustle and bustle if you wish.
And don't think that the two places are miles apart. To get from the village to the harbour only takes a few minutes wander down the Kali Strata, the journey back can take a little longer
the bus runs every hour and there are taxis so if you want to stay in the village and sometimes eat in the harbour or vice-versa, it's no problem.