Byron Bay is one of the backpackers most favorite spot on the east coast of Australia. It used to be quite an alternative place, however, we didn't notice much of that anymore.
Anyways, it is still a place where you can have a wild party and enjoy the beach during the day. In fact, the place is known as a party town among travelers. During the day, you can chill on a beautiful white beach, right by the city - with BBQs and showers and toilets - everything you need. Surfers enjoy the perfect waves.
There is a Conservation Area, a bit like a National Park, right by the town. At the end of the town there is the Cape Byron Lighthouse. And right behind that, there is the most easterly point of the mainland of Australia. You can hike all the way to that point in just a few minutes, it's very easy. We recommend that!
Otherwise, the number one thing you can do is party the night away. There are tons of other backpackers and some crazy backpackers stories are experienced here. For example, at the wet T-shirt contest at Cheeky Monkeys every Thursday.
Update: If you are looking for free places to camp near Byron Bay, we have listed a few places - just look for "Byron Bay" in our guide.