In Praia de Luz, you're well-situated to see the relatively unspoilt fishing villages - try Burgau and Salema- and spectacular coastal scenery of the western Algarve, assuming that you'll have a car. The further west you travel, the more breathtaking the scenery becomes.
Lagos, the next resort to the East, is well worth a visit; being the erstwhile capital of the Algarve and the base for the voyages of discovery to the New world, the town has historical interest, not to mention a huge choice of restaurants; there is also a marina there, from which you can book cruises or go dolphin watching ( unfortunately the little one won't be able to go on that one as it's a high-speed job ),together with a huge municipal swimming baths and a railway station from which you can access many more easterly resorts without having to drive.
P.S. Try the grotto trip in Lagos on one of the small boats; they're sold on the promenade there and are well worth doing; try and go at low tide ( check on the seawall opposite for tide level ) as many of the grottos are closed off by the incoming tide and your guide will be able to get his boat into more of the grottos when the tide is low.Hope this helps a bit.

Thank you.

the following website has a lot of good info for Praia da Luz and surrounds
http://www.lagos-luz-sagres.com/