I remember reading a few years ago when the word first entered the lexicon that in the US (whence it came) it refered to spending your vacation at home but doing day trips to nearby tourist attractions and eating out more. In that context it would be used only if you were sleeping at home most nights with perhaps one or two overnights elsewhere.
Yes, that’s my understanding of “staycation”.
We don’t use the word “vacation” here much and tend to use it as a synonym to “holiday”.
In the USA there is a subtle difference between the two.
When I worked there I remember asking a colleague, “what are you doing for your holiday?”. He looked at me bemused, and a few moments later said, “oh? Ah, I understand you now, you mean my vacation!”.
A holiday is a bank holiday weekend.
A vacation is your annual two week break from work.
As for staycation, this is a “stay at home vacation”, or to use Irish terminology, “stay in your own house (PPR) holiday”.
Given that about 80% of Americans don’t have passports, “stay at home” means “stay at your house (ie where you live).
(Of course, “Stay At Home” has different connotations in 2020).