A lot of people said I was crazy when I told them I'd be staying in a capsule hotel as part of my life list achieving trip to Japan. Now that I've done it, I can authoritatively say that it is awesome, and incredibly practical, and not weird or scary at all. Where else can you walk around with no shoes, in your pjs, and have draft beer served to you for less than $2 a glass? Add to that the fact that you can do your laundry in this place and have a reasonably priced meal (my meal was 600 yen, which is less than $6) served to you while watching TV, charging your phone and/or working on your laptop. And when you're done lounging around, you tuck yourself into your very own cozy little bed.
Consider this: if you're staying in a hotel with friends or several adult family members, you're sharing one bathroom and maybe sharing beds. You fight over the few plugs, and maybe someone wants to watch TV while someone else wants quiet to read. Not to call anyone out or anything, but my sister has to fall asleep with the TV on, but that's too much stimulation for me so I usually have to wait until she's asleep so I can turn it off, or for the sleep timer to kill it (unless I'm completely exhausted, in which case I could fall asleep at a rock concert). I think capsule hotels are ideal for this type of travel, because there are dozens of (really high tech) toilets and showers to share, you have a general hang out place to eat, unwind and recharge, and your own private space for watching TV or reading or whatever else.
I think capsules are only weird because they are novel; the idea of sleeping in something like a drawer conjures notions of coffins and dead bodies at the morgue. But not once did I feel like I was in a tight enclosure or suffocating or anything like that. I didn't panic when I woke up, and I didn't smack into a wall or bang my head on the ceiling. Even though the pjs provided didn't fit, I felt perfectly sized for the capsule; if anything, I felt I had more room than needed (at least in width).
One of the few drawbacks I see are that you don't have a permanent place to lay your things out. Even if you are staying multiple nights, your capsule assignment changes everyday. In retrospect, that's not necessarily a bad thing; it forces you to pack lightly and stay organized. But still, I know I like to spread out when I travel, so I consider it a drawback.
I did think it was a little odd that the hallway lights were never turned off or even dimmed, and the curtain in the capsule helped significantly, but did not make the capsule completely dark. Maybe that's by design, I can't say for sure, but if you need absolute dark to sleep, you may have trouble in a capsule.
For those who are taller than me, a capsule may be a little cramped. When I was laying down stretched out, my feet could graze the dividing curtain. I generally sleep in my side with my legs bent, so it wasn't a problem for me. But I would definitely caution anyone taller than 5' 8", especially if you sleep on your back.
The only major drawback I see is that there is no space to cuddle up with a significant other. The chairs in the lounge are all individual seats, and even if you could squeeze into a cuddly position, it wouldn't feel appropriate. I imagine a world where capsule hotels are the norm, and in that world, there would be specialized floors, like double-wide capsules on coed floors, and that would solve the problem instantly.
All in all, I think if I were traveling with a group of friends, and capsule hotels were an option, I would strongly advocate for them over traditional hotels. They are super practical, very inexpensive, and I am absolutely in love with the casual lounge concept. I can honestly say I didn't really want to leave, and I would recommend a stay at my capsule hotel to anyone who is not afraid of challenging the norm.
If I've persuaded you to try out capsule hotels, please note that most capsule hotels are for men only. The one I found that had just one floor for women is called Shinjuku Kuyakushomae Capsule Hotel. Perhaps because there is just one floor for women, it seemed to sell out in advance, so be sure to book early if you are a woman. The hotel had free cancellation on Travelocity, so it doesn't hurt to book it that way even if you're not perfectly clear on your travel plans, as long as you cancel with two days notice if your plans don't work out.
Here are some additional pictures from the capsule hotel!