PH has everything you'd want in a hostel: comfy curtained bunks with international power points, big lockers, a spacious common room and kitchenette with NT$40 beers. English-speaking receptionist Jacob is endlessly helpful, there's a range of tour options, plus scooter rental is available (NT$70/350 per hour/day).
It's right in the heart of Magong's dining area. The hostel provides towel and slippers, free laundry and (in summer only) a decent breakfast.