Because San Juan Del Sur is a surf town, the dress code is casual beachwear, but I think sometimes people forget that Nicaragua is a very Christian community and people should not be wearing their bikinis to the town, but should cover up.
There are not a lot of opportunities for dressing anywhere near formal in San Juan Del Sur.
The North Americans find it quite warm here in San Juan Del Sur so, they wear beach casual such as a shawl over a bathing suit, shorts and flip-flops. Their clothing choices is something to deal with the fact that it is ho, whereas the locals and the older women often wear skirts and blouses and, the local men in the surf industry wear pants and shirts.
There is almost no dress code, in a sense, because you can pretty much wear whatever you want anywhere you go. There is no place in San Juan Del Sur that will not accommodate you because you are not dressed to a certain standard.
Therefore, people feel comfortable in whatever they wear. It is only the locals that might feel uncomfortable if they see someone who is not well covered up so it is better to be a little more modest than you would be otherwise in order to make everyone else feel a little more comfortable.