Hotels in small towns generally aren't as expensive as those in cities or bigger towns. When traveling to a place you've never been to before, it's always advisable to do some research to find out if the hotels in [smaller] towns close-by to your travel destination offer better deals. You could save quite a lot of money that way.
Yes, the idea is really cool. Hotels in small towns are not just cheaper, they are also less crowded that you could actually relax because you would be saved from having to mingle with a lot of strangers if what you are looking for is a time for yourself, for your families, or for your friends, whoever you are with in your vacation. It would be also a nice experience as you wouldn't just be in one place.