Whenever in Madrid, we make a point of going to the sherry bar La Venencia at least once. We go partly out of tradition (Andrés, my father-in-law, loved La Venencia), partly for the atmosphere (very "old school"), but mainly because the jerez and food are fabulous. The prices are also very reasonable. At La Venencia you can enjoy a truly world-class glass of sherry and a tapa for a few euros.
La Venencia is the only place that I know in the city that serves sherry the traditional way--from barrels--and this makes all the difference. Bottled sherry is great, but sherry stored in the barrel is even better.
Keep in mind, the sherry is not drawn directly from the barrel into your glass. It has to be chilled first. So when the bartender pulls an unmarked bottle from the fridge to serve you, don't worry. He filled it up only a few hours ago from the barrel.
The varieties of sherry at La Venencia include fino (a tangy light sherry), manzanilla (an especially delicate type of fino), palo cortado, amontillado, and--probably my favorite--oloroso (dark, nutty, and complex). All of these are dry. (Unfortunately, I have yet to find in the U.S. any brands of oloroso or amontillado that have not been sweetened for the export market, and I rarely see palo cortado at all--so for these I give no links to sources).
The menu of pinchos or tapas at La Venencia is short and simple, but everything on it goes beautifully with these wines: salt-cured anchovies, anchoas en salazón (see my post "All About Anchovies"), paper-thin slices of smoke cured beef (cecina), manchego cheese , cured pork loin (lomo), and of course Spanish ham (jamón) . When you order a glass of sherry, you will receive a complimentary tapa of aceitunas de Campo Real, probably my all-time favorite olive.
La Venencia is located in the old city center, Echegaray 7, Madrid