I wish I could tell you that three weeks gives you plenty of time, but Spain is, well, Spain, and I dare say you will be easily overwhelmed, especially when so many wonders of this epic land match your particular interests. I am sketching a broader itinerary to tempt you, but you will have to leave some of it out, especially if you want to walk and hike more of this foot-friendly country. In part because it will be hard to choose, and also because you are seasoned travellers, you could certainly consider pacing yourself as you go. That said, three weeks isn’t nearly enough time for everything you will wish you could cover, so a well-considered plan is likely to serve you better. As for the visa, it’s always better to file a probable and clear itinerary, even if you don’t adhere to it too diligently.
Madrid needs at least 4-5 days by itself, and then there are the day trips it offers to Toledo, El Escorial and Segovia, though a visit to the magnificent Santiago de Compostella needs an overnighter. Andalucia’s scenic villages, hiking trails and exceptional food will easily thrill you for the next ten days, and they are only about a couple of hours away from Madrid thanks to Spain’s fantastic rail system. Keep in mind that Sevilla and Granada will need 3 very fulfilling days each, Cordoba can be a day trip from Sevilla, and Ronda is a hikers’ heaven that needs another 3 days (you’ll find plenty of trails at www.walkandalucia.com). And, of course, I have to wonder if you could fit in a drive down the 196km Ruta de los Pueblos Blancos or the Trail of the Whitewashed Villages (www.thewhitevillage.com; www.andalucia.org), stopping at ventas, pubs and tapas bars for hearty local fare. Thereafter, Barcelona can easily charm you for 4-5 days, plus it offers easily accessible day trips to Figueres (Dali’s birthplace) and Montserrat (well-marked trails around the mountaintop monastery), and you won’t regret a diversion to the stunning San Sebastian for another couple of days (fly to lovely Bilbao and bus it from there for cheaper travel, or take a train), before you return to Madrid at least a day before your flight out.
You will find nice places to stay at www.bedandbreakfast.com/spain and www.bedandbreakfastinspain.com. Midrange B&B doubles will cost you between €75-140, depending on the location and destination, meals for two at similar establishments will average €35-50, and you should set aside another €30-50 per person per stretch of intercity train travel. Keep a 20% buffer for entrance fees, incidentals and unexpected exigencies. Note that Madrid is a giant hub through which nearly all rail connections get routed even if it’s not on the way, which takes longer and costs more, so I think buses will work better for some stretches.