Terry's Lounge at the Cypress Inn is well known, but often under-appreciated.
First, it's an excellent bar, with great cocktails and wine list, but even more important, the staff is friendly and attentive, without being too. This is a "locals" bar that also welcomes visitors. It may be the closest thing to "Cheers" that's in real life. Also, it's dog friendly. The front bar, lounge, and the courtyard are open to dogs, who are treated like guests.
Second, and often overlooked, is the food. Terry's is one of the best restaurants in Carmel–by-the-Sea. It's classy, understated, and excellent. The food is excellent, and so is the service. Lunch and dinner can be served anywhere on the ground floor of the hotel, and the back of the restaurant is dog-free, if that's important to you. Also, it has many romantic qualities.