The location is perfect in that it is central but pretty quiet. If you get tired of walking the streets of the old town/the port area/etc. look for the No. 1 bus which will take you back to Plaza de la Merced in no time at all. As regards the flat, the sitting room/balcony area is just perfect. The bedrooms are nice too but bedtime readers are likely to complain that there are no bedside lamps. The kitchen has all the basic utensils to cook a simple meal (we couldn't find a pasta strainer, though). That said, there are so many eating options outside that you probably will not feel like cooking at all.
As already noted in a previous comment, be prepared to send photocopies of your passports to a gmail address provided by the agency operating the flat. Apparently it's a local legal requirement of which we were unaware at the time of booking.
One more useful piece of info: if you need to store your luggage, there is a small tourist office in Plaza de la Merced (i think at no. 13) where you are likely to get some help. Enjoy!