I also disagree, there's some great places to eat in both cities. For local specialties, go for fish in Montevideo at El Viejo y El Mar, as mentioned by Amiz. There are some great spots in the puerto. You also can't miss the local "dagwood sandwich", the chivito uruguayo, the best of which are to be had at any of the branches of Chivitos Marcos.
In Colonia, it's a bit tougher, but there's a delightful seafood restaurant on the waterfront called El Torreon that serves up Spanish and Portuguese influenced dishes, and you can sit outdoors and enjoy a great view. The restaurant Amiz recommended is fun, though I can't say it's among my favorite places food-wise.
I really have to disagree with Dagoose. Uruguay has some great places to eat. I think the place at the Mercado del Puerto is El Palenque. I've eaten there several times and you can always get a great steak there. In the Pocitos area there is Spagetteria 23 on Scoceria which has good Italian and a cozy patio out front. Also in Pocitos is the Francis which is quite good. For seafood, El Viejo y El Mar on the Rambla is very nice. Also on the Rambla, La Casa Violetta which is a good Parrilla.
In Colonia, my favorite place is in front of the old square. I remember the name is Viejo something. It's right next to "The Drug Store" . You can't miss it. The waiter is quite a charactor who wears crazy hats and yells across the square attracting customers. He alone makes it worth the trip but the food is good also. Hope this gives you some ideas.
I'm sorry. You are going to the wrong place for local specialties. The food in Montevideo is not so great. I reccomend a ferry to Buenos Aires.
Okay, now I will try to be helpful. The best restaurant, I cannot remember the name, I will try to google it, but its a Parilla right by the old market near the dock. It has a fabulous weekend late lunch, with dancers and a fantastic Parilla (mixed grill), I went back on a weekday evening, it was far less exciting. With your back to the meat side entrance to the market it was the first building on your left. I don't know the name.
Other than that, I will admit that in my three months in MV I had very little good food. Arcadia in the radisson was ok, but for a foodie, it was certainly nothing special.
for snacks, I have some better advice--Medialunas Calentitas are fantastic little warm coissants, they have a bunch of branches. All the bakeries have delish (albeit sugary) alfajores--a cookie sandwich with dulce de leche in the middle.
I remember eating at a japanese place in Colonia that was pretty good--probably just because it wasn't uruguayan.
Anyways, best of luck. Sorry to be so negative, but Uruguay is a culinary black hole...again, I reccomend the ferry to BsAs.