Toronto's enormously popular and well-attended Gay Pride celebration takes place each summer in the Church Wellesley Village, and just about any warm day you'll spot plenty of lesbians, gay guys, and friends of the community hobnobbing on the patios of the many cafes, lounges, and eateries in these parts that have them.
The Village has few accommodations (although there are few very attractive and welcoming B&Bs, including Victoria's Mansion, Chicago House, and Dundonald House among them), but the neighborhood is within a 10- to 20-minute walk of many downtown Toronto hotels, from the Financial District right up to Bloor Street.
Church Wellesley Village has cultivated a gay scene for several decades, discreetly so prior to the early 1980s, but in a very conspicuous and official sense since then. Fans of the American version of Queer As Folk will recognize it from many scenes in that TV show, which though set in Pittsburgh was filmed here in Toronto. As dining and entertainment districts go, the neighborhood is relatively stable - many of the same bars, shops, and restaurants have been going strong here for a decade or two. For longtime fans of the neighborhood and tourists seeking a reliably popular gay entertainment district, this is a good thing. If you're more interested in edgy, up-and-coming neighborhoods with more eclectic vibes, you might want to explore some of Toronto's trendier, mixed gay/straight areas, such as West Queen West (and adjacent Ossington Avenue) and Leslieville.