There are mainly 2 types of things I would recommend you to buy in Morelia's Craft Market: local candies and leathercraft. These 2 things are what I have bought in every visit I've made to Morelia. You will also find other kind of stuff which I will describe in my next tips.....
What to buy: So my first recommendation - provided you're a sweet tooth like me! - is: CANDIES! They have some really good stuff in Morelia. One of my favorites is ATE, which is a sort of jelly (harder and thicker, in fact it is defined as "a paste made of fruit cooked with sugar") made out of typically Mexican fruits: guayaba (guava), membrillo (quince) or tejocote (don't think there is a translation for this fruit)! I can tell you they are good and tasty fruits. This kind of candy is very sweet, so it's usually eaten with cheese to balance the excessively sweet flavor it has. You can find it in different presentations (thinner, harder and coated with sugar, natural, jelly-like bite-size version, etc.). There are also some good candies made with milk. There are other candies called "palanquetas" which are made with nuts, peanuts or the like, covered with hardened caramel. The 1st picture shows a variety of candies and on the 2nd picture you can see what fresh ate looks like!
You can also buy a drink called rompope, which is a sort of egg nog with a very small amount of liquor and which comes now in different flavors. This drink is manufactured mainly in convents (by the nuns) and is widely used to make many kinds of desserts, ice creams, etc. Just be careful when buying it, make sure it is in proper conditions first, because due to the fact it contains milk and it is NOT kept in fridges sometimes it gets rotten!
As I said, in this place you can find all kinds of candies but also other crafts made of wood, leather, copper, embroideries, etc. The 3rd picture shows you a nice monarch butterfly pin that I bought there (the monarch butterfly is the symbol of the state of Michoacan, where Morelia is located). You can find a LOT of stuff shaped as a butterfly and made with different materials.
We had walked by this shop before but never even gave it a glance. However this time my sister-in-law was with us and she's an avid shopper.... so she noticed it as soon as she walked by and said she wanted to go in later on to see the stuff they sold there. We didn't have time to do it that day, but my man and I did visit the store the morning after. I saw a bunch of stuff that I knew my sister-in-law would like so I told her later that day that we had to stop by before leaving Morelia.
So on our last day there (right before leaving the city) we all came back to this shop and ended up buying a bunch of stuff! The shop has an inner patio where most of its items are displayed. They have a pretty weird mix of items here: they have local crafts (especially baskets, wooden boxes, sculptures and glass vases/ornaments, clothing) but they also have a lot of ethnic stuff -mainly sculptures and masks- that looks rather African (!) and also a bunch of clothes & scarves made in India. They also have a lot of bath stuff: bath oils, candles, bath salts, aromatherapy stuff, etc. And they have some stuff for the kitchen and some original picture frames too.
What to buy: My sister-in-law bought 2 big giraffe wooden sculptures and a scarf with a peacock-feather pattern; my man bought a red glass vase and a mirror for our house (hand made in Morelia, will take a picture of it as soon as it's installed!), and I bought the nice scarf you can see in the picture. So you can find a lot of different stuff here which isn't necessarily hand-made or locally crafted but I guess that mostly anyone can find at least 1 item that they will like, mainly for decorating their homes or as a gift! Their prices are reasonable for most of the stuff they sell, but the hand-made crafts are obviously expensive.
The owners of this place also have a shop in downtown Patzcuaro.
There is an established craft market (the Casa de las Artesanías) located in what used to be a convent in the XVI century where you can find a lot of the stuff I describe here, but you can also find it (and most of the times cheaper) with the street vendors or in smallish shops, mainly in the downtown area....
Inside the Casa de las Artesanias you can find crafts from all over the state of Michoacan: embroidered clothes & tablecloths, wooden furniture and ornamental items (such as chests), kitchenware, pottery (clay), hand-made glass ornaments for Xmas trees, hand painted vases, bowls, coffee tables, etc. Of course the prices are quite high here. There are a few more tiny shops from particular vendors on the second floor of the building (which functions also as an open air museum) where the prices are better, even though they don't have such a big variety of stuff. And finally there are some craftsmen & women that come from nearby villages to sell their crafts, especially on weekends; they set their stands right outside of the Casa de las Artesanias and their prices are lower than the ones you will find inside.
What to buy: Wooden stuff is also very typical of Morelia and you can find some beautiful things here (mostly toys and decoration items). There are also a variety of items (mainly kitchenware) made of copper, which are very beautiful and not so common.
The first picture shows the wooden hand-painted jewelry box that I just bought on my last trip. It's quite light, it has a "big" drawer, 2 small drawers and the top lid can be opened too and has a mirror inside. And it cost me less than $10 USD...! The 2nd picture shows the nice pottery you can find here. It might not be as fancy, but it is very useful for any kitchen, resistant, and VERY MEXICAN! Besides it is quite cheap. If you are coming from across the planet it might not be a good idea to take big pots which might get broken during your journey, as they are also very heavy, but if you're not going far and can afford to take a hand bag to carry them with you (DO NOT put them in your luggage) it's worth it!