I highly recommend visiting Florida's "other" Keys, in addition to Key West. Although August is not an ideal time to visit with respect to the weather, it is low season in the Keys, so we were rewarded with fewer crowds and significantly discounted rates for the hotels at which we stayed.
Our favorite things to do on Key West were staying at the beautiful Gardens Hotel (especially enjoying the pool and the beautiful grounds), just walking around and looking at the lovely historic houses, and eating delicious tropical-flavored ice creams and lots of fresh seafood.
The rest of the Keys have a lot to offer, as well. If you want to snorkel, consider doing it at Bahia Honda State Park, just north of Big Pine Key. They have three trips a day to Looe Key Reef, where there is amazing snorkeling (just under per person). Also check out the "puppy" deer on Big Pine Key. Early evening is the best time to try to spot them.
Quick Tips:
The sunset celebration at Mallory Square is a bit overrated--go because it's de rigueur, but expect crowds, hawkers, and lots of noise that detract from the experience of watching what truly is a spectacular sunset.
Best Way To Get Around:
Rental car is the best way to get around the Keys if you want to see more than Key West. If you are only going to Key West (and flying into it), you can take a shuttle/taxi to your hotel and then walk everywhere (it's really not convenient to drive/park in town in Key West).