I read that if you soak towels in a solution of 150 mls white vinegar to 4.5l water before washing, it will make them all soft and fluffy again. Haven't tried it as it sounds a bit unlikely to me - anyone else know how to restore towels???
It depends why your towels are hard. if you live in a hard water area then they can collect scale in the fibres and the vinegar will dissolve the scale. using something like calgon when you wash (not fabric softener which makes them less absorbent) will stop the scale build up. If your water isn't hard then line drying can make them crunchy, tumble drying or finishing in the tumble dryer gives a softer finish.
I was told not to use conditioner when washing towels, although I still do a bit. If you have a tumble drier, put the towels in before they are completely dry, when they are sllightly damp they tumble dry much softer.