Kuala Terengganu has an impressive selection of eateries and you'll certainly not struggle to be fed. If you like a cold beer with your meal you'll need to stick to the Chinese restaurants in town as the other options, including the convenience stores, do not stock alcohol.
One of the specialities in Kuala Terengganu is nasi dagang, a dish of sticky rice mixed with coconut milk and shaved coconut then served with a spicy fish curry. While you'll get this across town, our favourite was at Tempung Puteri, a riverside restaurant in the northwest corner of town (near the market and end of the boardwalk). Not only was the nasi dagang great, there are also a bunch of other dishes on hand (it is all point and pick, no menu) making this a great place to sample a few dishes and enjoy a fresh seabreeze.
If you're hankering for roti for breakfast, Naj d'Leaf on Jalan Tok Lam is central to quite a few of the accommodation options and does very good roti along with lunchtime dishes at reasonable prices.
Kuala Terengganu's Chinatown (Kampung Cina) that runs along the bank of Kuala Terengganu river has some excellent options. About halfway down Kampung Cina Road you'll reach Madame Bee's Kitchen (177 Jalan Kampung Cina, T: (012) 988 7495, firstname.lastname@example.org) which does local specialities including laksa Terengganu (which we definitely recommend) in a cool little air-con setting.
Further down the same road you have Golden Dragon on your right (try the steamed grouper, skip the garlic prawns) and further down still on the right, Town City Food Court where you can choose from a selection of vendors offering everything from bak kut tee to nasi goreng through to a solid range of seafood. We had a spectacular stir-fried squid in black pepper and okra here -- they also have the cheapest beer in town.
Back towards the centre of town, on Jalan Petani you'll find Restoran Straits which is arguably the most popular Chinese restaurant in town. The food is excellent but there is no English menu and the staff can be a little abrupt if you haven't got an A-level in Mandarin. Persevere -- it is worth the effort.
If you've ended up staying over on the east side of town, the Ocean Restaurant (down the alley by KT Beach Resort) is another popular Chinese restaurant with a limited English menu. The food is very good, but it probably isn't worth walking across town to reach. If you're staying in the area, you will be a regular.
Lastly, if you're staying over the river at Awi's there is a Friday night market on Pulau Duyong that is quite good -- we'd never seen so much fried chicken in one spot before.