Valparaiso is indeed colorful. And hilly. Your glutes will get a good workout. So put on some comfy shoes and get ready to wander the endless narrow streets and staircases. When we were there many of the funiculars were not working. Our butts look fabulous.
Valparaiso, or "Valpo" as locals refer to it, has been compared to San Francisco - they both have hills and interesting architecture, are situated on the water and have a bohemian feel. Well, SF did 30 years ago before it became the over-built bastion of wealth it is today. Even with all the stray dogs in Valparaiso [there are a lot], Valpo is cleaner and smells better than SF. There is also more graffiti than any place I've been. You can wander for days taking it in, but I'd recommend a tour to get some background on the more important works.
The graffiti started in the 60s when art students, later frequently protesting the Pinochet regime, used buildings as canvases. Today folks pay artists to paint their buildings. Good murals are respected even by gangs, who do not paint over them. In between murals are old dilapidated buildings and charming, colorful tin-clad houses - a remnant of the city's past when ships used the tin sheets to line the boat. Since all the tin houses looked the same, drunk sailors would frequently stumble into the wrong house. Leftover paint was used to differentiate them and to this day directions are frequently given as "the red house on...".
So follow in the footsteps of Ernesto 'Che' Guevara, Chilean Nobel Prize winning poet Pablo Neruda and and Chilean hippies and admire the colors.