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M. Frederic Damgaard first entered the walled city of Essaouira some thirty years ago, when Yusuf Islam was still called Cat Stevens and when Jimi Hendrix and a host of other sixties "scene" people were hanging out, getting stoned on good, plentiful kif. The hippies went away, but M. Damgaard stayed and several years later opened an art gallery in a cool and cavernous house near the city gate. A first-time visitor to Essaouira stepping into the Galerie Damgaard before seeing anything else in town is likely to be amazed.The vibrant oil colours dazzle the eye and the force with which they have been applied to board (canvas being rare and expensive), provokes all sorts of questions. The images were unlike anything I had seen or imagined elsewhere in Morocco, and I was curious to know from where the inspiration had come. M Damgaard directed me towards the streets, along the quays, into the souks and cafes of this seductive town.

A row of palm trees lines the road opposite the gallery, casting elegant shadows against the rust-red walls of the inner town. Old Souiries in jellabas rest in these shadows in the heat of the day. Later, when it is cooler, women covered by their haiks chat beneath the walls while their children play on the short-barrelled cannons, which guard the high key-hole entrance to the old town. This, it is clear, isn't just any old town.

Beyond the palm trees, Essaouira's defences are easily breached. For some this is a problem. It means that suddenly you leave the rest of Morocco behind and arrive in the heart of a town whose soul belongs to African slaves, ruthless pirates, Jewish traders, British tea merchants and a host of other exotic characters. When you pass through the gate, you step into the story of Mogador.

Old Mogador was just a name to me, but it wasn't long before people were fleshing it out, telling stories about the origins of the town. Even in antiquity there was a settlement around the good anchorage, protected by a string of small islands. In the 16th-century, there was also a commanding Portuguese fort, but Mogador as we see it wasn't begun until the 1760s when Sultan Sidi Mohammed decided to punish the rebellious people of Agadir by creating a new port that would take away their business. According to legend and two guide books, a French architect called Theodore Cornut, whom the sultan happened to be holding captive, was offered his freedom in return for designing the town. The reality is a little more prosaic: Cornut was paid well for his work and a contemporary noted that he was shown all the honours due to “an engineer of the kings of England and France.”

Whatever the truth, Cornut's stone bastions and fairy-tale fortifications have protected Essaouira's inhabitants for two centuries and still guard some of their secrets; but there is more to Essaouira than this. Sultan Sidi Mohammed moved the Jews from Agadir, and in Mogador their community prospered, producing several important families, including a Mr. Disraeli, father of the Victorian prime minister. Christians were lured with lower taxes and by the 19th century Mogador had become a great trading centre and a crossroads of cultures. Known as "the port of Timbuktu", in its souks Africans, Arabs and Europeans traded slaves, gold and other African "commodities" for European cloth, Chinese tea and metal tea-pots made in Manchester, now as essential a part of life in Morocco as sunshine and music.

During my first night in Essaouira, asleep in an old stone house with whitewashed walls and bluewashed shutters, I dreamed of a painting I had seen in the gallery. The image, by the artist Mohammed Tabal, was of a man striding forwards, looking back. In Europe Tabal's work has been called naïf and primitive, but such labels are misleading, suggesting links with artistic movements elsewhere. Tabal's ancestors arrived with trade caravans from black Africa, his father was a gnaoui, a mystic musician - the name T'bal signifies a large drum - and as much as anything else within the walls, Tabal's paintings belong to Essaouira. Like the city, there is a story attached to them: the one of the man walking, with his sardines, his tagine pot, truck, mosque, arched entrances and palm trees, is unmistakably a tale of the town.

In the morning, foreigners arrived from Agadir to do what they have been doing for the past two hundred years; shopping in the souks, lunching by the sea and listening to gnaoua play their music. They didn't stay long, but I preferred to do as the man in the painting and carry on walking, looking for clues to help me understand something of the secretive nature of the town.

Each morning I walked in the souks, still extensive though most of the Jews and European traders have gone, through alleys of brilliant fabrics, of silver, amber and necklaces of heavy stones brought from the desert. Each day I found something new - shoemakers weaving raffia, chameleons and a menagerie of dried birds or animals to cure everything from broken toes to broken hearts, pottery as brown as the earth, as green as the gardens of paradise, desperate townspeople selling their spare trousers or the shirts off their backs in the second-hand souk... To walk there was to indulge my senses. It was also a good way of seeing people, of meeting some of them and hearing their stories. What's more, it was easy to do - this isn't Marrakech or Tangier and, perhaps because there have always been foreigners in Essaouira, there is less hassle and few "guides" promoting their uncles' shops or special tours of the ramparts.

Beneath the ramparts, even without a guide, I found Essaouira's woodcarvers, continuing to earn themselves a good reputation and, for some, also a good living. Marquetry is what the town is now best known for, and the alleys outside the dim workrooms are scented with the resin of thuja-wood, a rich, dark timber from which the craftsmen make boxes and bowls, picture frames and tables, inlaying them with creamy lemon-wood, with iridescent mother-of-pearl or darker acacia and ebony. It is an old craft and an apprenticeship in Essaouira's workshops used to be a lengthy, tradition-ridden affair, starting with the fetching and carrying and ending, so many years later, at the top of the hierarchy, designing, overseeing and inlaying. But better education and sharper ambition are bringing changes: while old M. Boumzzourh, a master ebonist, carves frames and boxes in his small workshop, his son Abdel Nasser has a large showroom nearby, selling designer thuja-wood furniture to the likes of Yves Saint-Laurent.

For most of my stay in Essaouira the air was still, the ocean calm, the sky an unblemished blue. Late in the afternoon I used to walk along the kilometres of beach, watching football matches, courting couples and families out for the air, wondering why Essaouira's beach front hasn't been "developed" like Agadir's in the south. On my last day the wind picked up and then I had my answer. Surfers don't call Essaouira "Windy city Africa" for nothing! With a minimum of gale force 4 for 250 days a year, what is paradise on the waves can be purgatory on the beach.

On my last afternoon I stayed in town and was glad I did. For a magical hour, as the sun lowered itself over the ocean and the last tour coaches headed back to Agadir, Essaouira's strongest colours came out and allowed me to pick up the pieces of Tabal's painting. In the old port, fishermen unloaded their catch under the silent gaze of their wives, the quays busy with porters whose faces suggested the different races that have sailed in over the centuries. Elsewhere others gutted fish, baited hooks or loaded crates onto trucks, passing beggars hoping for a hand-out. Back in town the souvenir shops were being locked up, the souks still busy, the ramparts closed, a solitary game of beach football running into extra time, sea gulls settling on Cornut's battlements, women lounging on low walls and garden benches, a few men strolling into the Grand Mosque, young girls managing to flirt beneath their veils. It seemed as if the whole town had come out to breathe the cooler air and savour a moment's rest at the end of the day. Then suddenly it was over. Darkness fell and, like everyone else in town, I stopped walking and looked for a place to sit and eat.

By the following morning, the colours in Essaouira's gallery were no longer a surprise and before leaving town, I went to buy Tabal's painting. It cost more money than I had to spend and it wasn't easy to carry on the plane, but it was a small price to pay for the memory of such a magical place, striding forwards, looking back, taking care of its heritage along the way.

Read more travel writing by Anthony Sattin