Most people stay in with their family until 12 midnight.
Many restaurants are closed and some of them have special menus.

At 12 midnight there is a big gathering at the Plaza del Carmen, the square of the "ayuntamiento" (Town Council)
(The one with the bronze statue of a horse on the roof)

There is a big crowd of many people. Fireworks wizz about in a general mayhem.
At 12 midnight the Spanish custom is to eat 1 grape for each toll of the bell.
A lot of Cava (champagne like wine) is consumed.

After that many of the bars have what is called a "cotillon".
It's a type of private party sometimes in a bar.
You buy a fairly expensive ticket and you can drink as much as you like all night long.
I've only ever been to one. One is enough.

There are normally a lot of bars open along the Calle Elvira.

One year I went up to Mirador de San Nicolas and watched fireworks go off over the vega (the flat fertile land to the south of Granada).
You can see the fireworks of many villages in the distance.

In Summary:
Don't make a special effort to be in Granada on the 31st of December.
Most people don't go to bed until 7 or 8 in the morning.
It's a night of heavy drinking.
It's not the best night to go to a restaurant.
If you get hungry and can't find anywhere to eat go for a Swarma Kebab on the Calle Elvira.

If you do stay up to the early hours go and have "chocolate con churros"
(Long ropes of fried batter served with cups of thick chocolate drink)
at the Cafe Futbol in Plaza Mariana Pineda.

Some vocab:
Feliz Año Nuevo - Happy new year.
Noche Vieja - New year's Eve.