1BR condo here, 711 square feet. Last year I got rid of my old couch (a futon) and replaced it with a loveseat and chair. The smaller furniture fits the room better. However I have less seating as a result.

Potential overnight visitors know that I only have room for 1-2 people. Any more than that I and will refer them to a nearby hotel.

Since getting rid of the futon couch I got an aerobed for guests who do stay over. But the people who are most likely to stay over are my parents, and I give them my bed and I sleep on the aerobed in the living room.

As for parties and such, at most I would only invite a few people over at a time. Which is okay, since I've never been much of a hostess.

I think it makes sense to take advantage of the community meeting room when you have groups of people over. It's more comfortable when there's adequate seating and room to move around. I'm sure people understand that some of us just don't have large homes for entertaining.

By the way, I also try to get furniture that doubles as storage when possible. Last weekend I bought a storage ottoman at Target. It looks nice, gives me extra space to hide stuff away, and could also serve as seating if necessary.