On your way to the Castle you should walk past St Nicholas' Cathederal which sits just at the base of the hill which the Castle is located on. Walk up the hill along Nerudova and you will come to a small junction turn right at Ke Hradu which will take you to the Castle or if you follow Nerudova it turns into Uvoz, where the best Cafe we visited is located, U zavesenyho. Again this restaurant provides traditional Czech cuisine at a very reasonable price. You can have a main/dessert plus a few beers for no more than about $8US each. Although be warned it may take a little while to get a table, and then after that, getting service. Make sure that you try some of the honey cake (Medovniky) its great!
Intimate, friendly cafe close to the Castle and Hradcanske Nam, yet still feeling off the main tourist track. Interesting series of rooms where heartfelt intimacies can be shared, backgammon played, and favorite works of literature dissected. And an open courtyard with cats. If you want to know what a hanging coffee is, just ask. The cafe sells t-shirts and encourages patrons who travel to send back photos of themselves wearing the "Hanging coffee" shirt wherever - at Golden Gate Bridge, or Great Wall of China, or Maccu Piccu. This would be a great place for a VT meeting!
This is a charming little pub on the way down from the castle to the old town. It's name translated as "At the hung-up coffee" is linked to a short story. You can get absinth here and drink it the traditionl way with sugar on spoon and fire and they have small traditional things to eat, like baked potatoes with different sauces and they're all nice.
I cannot sing the praises too highly of this quaint little Prague eaterie. Just up from Malestranske Namesti, this cafe offers great snacks at very cheap prices. I had a lovely hot chocolate - just the thing for a winters day in Prague; and roast potatoes with 3 sauces. Very filling, and tasty. All for just under 100 krowns, so excellent value too.