Just like any other type of property, a townhouse has it's pros and cons.
Typically, they have a backyard, so are simmilar to a terrance, however the land is typically strata - so you own the air space rather than the land. You have rights to the land, and that is what gives you your value.
The banks are usually fine with them, and will generally treat them as well as a house.
Regarding what size is acceptable, that's much too open ended a question. If you're buying in the city, a small townhouse with small yard can have a lot of value, however in the further out suburbs, it may not be desireable. They are generally cheaper than terrances or stand along houses.
It costs no more to buy one - however you have the additional cost of Body Corporate costs on an ongoing basis.