Disneyland only has three hotels to choose from that are onsite. They are all basically on par with a deluxe at WDW and they are all expensive! EE is a big reason to stay at DLR onsite hotel but I also think there are other reasons. They all three have lovely pools with slides, hard to find that at any of the nearby offsite motels. There are also many little advantages, like room charging privilidges, character dining right there where you are staying, the feeling of being surrounded in the magic, Disney theming and customer service and amenities like room service. Many of the nearby motels in Disneyland are just that motels. Meaning no room service, bell service or other things you might be accustomed to depending on what level of WDW resort you are used to. There is a Hilton and some other similar hotels nearby with those type of amenities, but I usually find they are not that much cheaper than the onsite hotels. If I am going to stay offsite, I want to save big bucks. I love staying onsite, but sometimes cannot afford it so I have found a couple of offsite places I like just fine and I love it that they are so much cheaper and even closer to the main gates than the Disneyland Hotel or Paradise Pier. You can click on the sticky threads at the top of this board for information on onsite and offsite lodging at Disneyland. Also, you can check rates, availablity, and see photos on Expedia of the Disney hotels as well as the other offerings.
As for length of stay, I think four days is generally perfect. In three you can see most everything at the two parks but in four days you can take it at a leisurely pace and repeat some of your favorites.
I love Disneyland and think it would be wonderful if you could visit this August before the 50th celebration ends the next month. Disneyland is Walt's original park and many of the rides it shares with WDW are better, namely Pirates and Space Mountain. Also, Disneyland's Fantasyland is wonderful with some classics you can't find at WDW. DCA is a fun park too and since its right there, you can hop back and forth all day no problem. DTD is also right there so you have all those shopping and dining options. However, I have to agree with Judy from Boise, maybe AP's at WDW would be the better idea. Although to get the free dining, I think you would have to do a MYW package with hotel and park tickets wouldn't you? Plan on spending more for food at Disneyland than you do at WDW (even when its not free). Due to being in Southern California where everything is more expensive, Disneyland charges more for counter service and full service/character dining. My first thought would be to absolutely take advantage of this airline deal to go to Disneyland. But it might make more sense financially to go to WDW. However the cost of a full room/ticket package at WDW might not save you much if any over what you would spend at one of the many nice, comfortable offsite motels within walking distance of Disneyland. It would be interesting to compare. I would imagine that in late August you could find offsite lodging for under $100 a night without too much problem. Then you would have to add the park hoppers and meals. Park tickets are definitely cheaper than the MYW tickets at WDW. Also, Disneyland is easier to do for a short vacation. No matter how many times I go to WDW, I feel like I need at least a week, preferably more! At Disneyland however, I feel pretty satisfied and get my Disney fix in three or four days!
Good luck with your decision!