Few people are aware of the existence of Spanish Morocco, and Melilla is much less known than the other part, Ceuta. The existence of Melilla today, is based on history more than anything else. While Melilla is pleasant, clean and apparently well-off, most of this is the result of subsidies from the Spanish state and EU.
Melilla's own income come from thousands of soldiers, contraband and still some tax free shopping. But there are less visitors coming from mainland Spain than before, and the Moroccan police has become more effective in stopping illegal importation of goods from Melilla, so there are dark clouds over the city's future.
Melilla is far more a mixture of Spanish and Moorish, than most cities in southern Spain. The old city and the fortress out at the sea are things in Melilla that attract tourists. And the market area is very charming.
But the main attraction of Melilla is of course the weirdness of the place. It is so small that all land is regulated, surrounded by Morocco on all sides, and 6 hours ferry ride from mainland Spain.