La bahía del oeste me gustó, pero la del sur me impresionó más.

Because de + el contracts to del in Spanish.

• de + el oeste → del oeste
• de + el sur → del sur

This contraction is mandatory in normal Spanish, except when el is part of a proper name, such as de El Escorial.

So here:

• la bahía del oeste = the bay of the west / the western bay
• la del sur = the one in the south / the southern one

Spanish often leaves out a noun when it is already obvious from context.

So:

• la bahía del oeste
• la del sur

In the second phrase, la stands in for la bahía. This is very natural and avoids repetition.

It works like English the one in the south, where one replaces the repeated noun.

That la is not just the article for sur. It is the article standing in for the omitted noun bahía.

So la del sur really means:

• la [bahía] del sur

Since bahía is feminine singular, the article is la.

If the missing noun were masculine, you would use el instead:

• el del norte = the one in the north if the noun were masculine

Because gustar works differently from English to like.

In Spanish, the thing that is liked is the grammatical subject, and the person who likes it is expressed with an indirect object pronoun.

So:

• me gustó la bahía literally means the bay was pleasing to me
• natural English: I liked the bay

In your sentence:

• La bahía del oeste me gustó
  literally: The western bay pleased me natural English: I liked the western bay

That is why the verb is gustó: the subject is la bahía, which is singular.

In both cases, me means to me or me, but the structure is slightly different depending on how you think about the verb.

• gustar is commonly explained as to be pleasing to
• impresionar works more like English to impress

So:

• me gustó = it pleased me / I liked it
• me impresionó = it impressed me

In both clauses, me refers to the person affected: me = to me / me.

Because each verb has a singular subject:

• La bahía del oeste → singular
• la [bahía] del sur → singular

So the verbs must also be singular:

• gustó
• impresionó

If the subject were plural, you would use plural verbs:

• Las bahías me gustaron
• Las playas me impresionaron

Gustó and impresionó are in the preterite, which is often used for completed past events or reactions.

Here, the speaker is talking about a finished experience and giving a reaction to it:

• I liked the western bay
• the southern one impressed me more

This sounds like a complete, bounded experience.

If you used the imperfect:

• me gustaba
• me impresionaba

it would sound more like an ongoing feeling, a repeated situation, or background description.

Very roughly:

• me gustó = I liked it / it pleased me at that time
• me gustaba = I used to like it / I was liking it / I found it pleasing

Because más modifies impresionó here: impressed me more.

Spanish often places más after the verb phrase it is modifying:

• me impresionó más = impressed me more

This is a very natural word order.

You could compare it to English:

• The southern one impressed me more

So the sentence contrasts two reactions:

• me gustó = I liked it
• me impresionó más = the other one impressed me more

They are related, but not always equal in style.

• del oeste = of the west / western
• del sur = of the south / southern

These are everyday and very natural.

The adjectives occidental and meridional exist, but they are usually more formal, literary, technical, or geographical in tone.

So in ordinary speech, la bahía del oeste and la bahía del sur sound more natural than:

• la bahía occidental
• la bahía meridional

Because pero introduces a contrast between two complete clauses:

• La bahía del oeste me gustó
• pero la del sur me impresionó más

Using a comma before pero is standard and natural here, just like in English before but when joining two full clauses.

They have written accents because of Spanish stress rules.

• bahía: the accent shows the stress falls on -hí-, and it also helps show that í-a is pronounced in two syllables: ba-hí-a
• gustó: the accent shows stress on the last syllable: gus-TÓ
• impresionó: stress on the last syllable: im-pre-sio-NÓ

Without the accents, the words would be pronounced differently according to normal spelling rules.

Yes, absolutely. That version is completely correct.

Repeating la bahía is grammatical, but it is a little less elegant because it repeats information that is already clear.

So:

• la bahía del sur = full, explicit version
• la del sur = more natural, less repetitive version

Spanish often prefers the shorter version when the noun is obvious from context.