We were in KW the week of July 4th and then again a couple weeks ago. We stayed at Sunset Harbor both times (15 nights total) and 2 nights at Windward Pointe and we enjoyed both stays very much. It was a different vibe but still the same Key West we love. We spent much more time in the pool during the day than we do during a "normal" week. The resort was quieter, as was the town during the week.
Weekends are still crazy busy but we avoided lower Duval at night and didn't stay out nearly as late as we usually do. I think we were only out after dark twice each trip and that's not normal for us. Or it wasn't anyway, but we really enjoyed our more laid back trips this year. There's still really good live music at the restaurants that are open - Smokin' Tuna, Hog's Breath (closed on Mon/Tues while we were there), Schooner Wharf Bar, Viva's, Sunset Pier, Island Dogs, Willie T's, Irish Kevin's and Rams Head are the ones that come to mind. While bars are still closed, some are open for to-go drinks only - Tattoos & Scars, Tree Bar, Tiki House, Green Parrot, Bull, Fat Tuesday's. Sloppy Joe's is still closed but will start selling to-go drinks on 9/4. Captain Tony's was only open for T-Shirt sales. KW just yesterday voted to allow seating at the bars inside restaurants so that should help with the vibe. Every single restaurant we were in was doing a good job with Covid requirements. None were overcrowded because they were adhering to capacity limits and social distancing. You had to be seated to be served.
We still ate out as much as we normally do and had pizza from Mr. Z's delivered one night during each visit. We stuck to mostly outside dining but did eat inside at a select few places - Banana Cafe, Harpoon Harry's, Sandbar. Most restaurants are open, though some have closed their doors for good - Lucy's, Roof Top Cafe, Paradise Pizza come to mind. Many empty stores on Duval but none that we would miss. I do miss Lucy's though. Great happy hour deals with half priced (or cheap) apps at First Flight and White Tarpon - we made meals out of those twice during our last visit.
Locals were very welcoming and happy to see us. We're not scheduled to be back in KW until December but I'm trying to talk my husband into going back again in a few weeks. Let me know if you have any specific questions about what's open or whatever. I'm happy to share our experience.