A with most cities restaurants will have premium priced advance booking meals. If the restaurant has a view it will be very, very expensive (Quay for example).
The free option is to grab a place in one of the parks that surround the harbour, just under the bridge on the North side is good, or near "Mrs Macquaries Point" just past the Botanic Gardens. People will often head for the good spots mid to late afternoon, and they will be getting full by the early evening. Best advice is to take a picnic and some drinks and relax in the warmth of a summers day (although some sites have bars and don't allow BYO).
As bondi2026 says there are two displays both very good, they have quite a few launch sites, on buildings, barges and the bridge - don't miss either of them.
Obviously it does get very crowded especially around the bars in the Rocks and in the areas with the best views (I seem to remember approx 1 million people watch).
Two other really good options are to book a place on a boat, or try and get a ticket to one of the harbour islands. The boats tend to have inclusive buffett/drinks packages, they are quite expensive, and the quality of food is pretty average for the price, but you do get a great view and you avoid the crowds. Some of the islands are catered with food and drink included in the price, others are BYO picnics. Here is the link to the City of Sydney web that has the details.
What would I do if I was home for NYE? I have been to the rocks, sat on a friends balcony, and had a couple of boat trips - all were great. Next time I think it will be boat or island as I am over the crowds.
Are you staying in the Sydney CBD? The fireworks are set off from different locations around the harbour including from the Harbour Bridge which is closed to traffic prior to the midnight fireworks. There is a 9:00 o''çlock fireworks display as well for young children. If you are in the CBD then you could go to Circular Quay or anywhere nearby like the Rocks etc. Darling Harbour is also very alive on NYE. The weather is usually good and it's a great atmosphere.