Accessorize with chairs and a smaller sofa like a loveseat. The end result looks fantastic and still allows you to have a sofa in the living space. If seating is really limited and you're an entertainer also consider investing in some stackable chairs and plenty of pillows. The chairs are portable, good for outside and easy and small to store.
Finding an ottoman that is padded on top but opens up. It makes a great seating location if you throw a few pillows on it and it's also storage unit. At the same time it does double time as a table and don't forget it's always a handy place to prop up your feet!
Keep in mind baskets, as they can fit under tables or chairs and provide additional storage. They also look more organized when placed on shelves or in cupboards then various knickknacks would.
Finally, don't be afraid of colour! A simple trick is to stick to 1 or 2 main colours with 1-3 accent colours. Experiment with patterns as well. Too much colour and pattern can overwhelm a room regardless of size, but used well it can really enhance a small space.
We love hearing tips and feedback! Let us know if you have other ideas for small spaces.