Phuket is best tourist destination and it is worth going to Phuket in July and August. It is top destination of Thailand and having more top attractions.

Summertime in the West is low season in the East. Water clarity isn't that good and the seas can be choppy with a frequent downpour. But these showers only tend to last about half and hour and then the sun comes out again. Temperatures are slightly lower at around 31C during the daytime and 27C at night.

The good news is that prices are much lower during the low season and you benefit from cheaper hotel rates especially. Also, it's not so crowded, but still benefits from a party scene especially in Patong.

Krabi is not really a party place and holds more interest to those who enjoy rock climbing and diving. There are a few bars around, but the whole atmosphere is pretty subdued.

Here are Wikitravel guides for both:
Krabi: http://wikitravel.org/en/Krabi_Province
Patong: http://wikitravel.org/en/Patong

Also, go to http://www.youtube.com/ and do a search for "Phuket nightlife" and you'll get the picture pretty quickly I think.

There's a very high possibility that the beaches around Phuket will be red flagged for swimming. On some occasion that I've been there in August the sea was too rough for pleasure boats to leave the harbour or anchorage.

The amount of rainfall will depend on your luck. Some days only a few minutes of rain but some days it can rain for much longer than that.

So, I take it that the nightlife is still worth the trip in July. I will be in Thailand for two months and I am more of a nightlife person so I am looking into options. I plan on visiting koh samui as I hear that it is ideal in summer. How does the nightlife compare between these two islands in July and August? I was in bangkok in August and the nightlife was great in RCA area. Are these islands similar?

Define what you mean by "nightlife"?

Nightclubs with dance music. Bars. Busy atmosphere not empty.

You will not find that in Phuket during August as it's a low season. The clubs and bars will be empty IMO as the hotels are not even 1/2 full. Better bet would be Koh Samui and Koh Phangan, perhaps the full moon party there. Note that I haven't been to a full moon party proper but I hear that it's quite "wild"!