First of all, let's talk about what star ratings DON'T mean.  First of all, they have nothing to do with the location of the hotel.  It could be right in the center of the city or miles outside.  The star rating has very, very little to do with the location of the hotel.  Secondly, it has nothing to do with the size of the hotel room.  I have stayed at 1-star hotels that have larger rooms than 4 or 5 star properties.

What star ratings do apply to are the amenities a hotel offers.  For instance, does it have a restaurant?  In some countries, it is impossible to get a 4-star rating, no matter how good the hotel is, unless it has a restaurant.   So, unless eating at the hotel is important, a 3-star hotel can be just as good, or better, than a 4 star just because it has no restaurant.   And because in general, 3-star hotels are less expensive, a bargain can be found.   Other amenities hotels are judged upon (they vary from country to country) are TV, elevators, concierge services, spa services, fitness services, parking, pool, business meeting/services, and reservation services to name a few.

Another way to find a bargain is to find a hotel that has upgraded its hotel from a 2 to a 3-star for example, but is just awaiting its certification on the new rating.  It's a way to get a 3-star at a 2-star price.

Here is The Traveling Professor's quick guideline on star-ratings:

• No stars – You don’t want to stay here.
• 1 Star – Probably no private bath.  No A/C.  Other than the hotels specifically recommended, you probably don’t want to stay here either.
• 2 Star – The better ones have private baths and are clean and comfortable.  An interior decorator has probably never seen the inside of these hotels.  Good ones have hair dryers, elevators, but maybe not A/C. To be safe, don’t book a 2-star unless it comes recommended.   Hotels in this class are usually smaller properties.
• 3 Star – Sometimes small and charming, but some can have well over a hundred rooms.  Private bath.   Most have A/C.  Usually a safe bet.
• 4 Star – Quality, full service hotels.  Still, rooms may be smaller than what is found in the U.S. 
• 4 Star luxe and 5 Star – The Ritz, Meurice, Costes, Lotti, Intercontinental, Excelsior etc.  Some of the best luxury hotels in the world.  Expect to pay 325-900+ euros per night.