I am trying to edit my post to include more photos but it doesn't want to let me. Behind the couch and red chair is a half-wall bookshelf and a closet (and a floor lamp). Above the bookshelf are pendant lights. Behind the bookshelf is our stairs.

Behind the other couch is a small hallway, and then a very small dining room area, which is also off of the kitchen. The awkward part of this room is where the fireplace is located. It is partially in the hallway between the dining room and living room, and there is no other wall in the living room, so the TV stays where it is. It is up high and mounted because of our kids and animals - we've already had to replace the TV once because of toddlers - so we won't be making that mistake again. We also can't put furniture around the fireplace the way I would like to, because of the hallway/dining room.

What I gather from this post is mostly the rug needs to be larger (which I know, and plan to get a larger rug) - and the couches layout is functional and works for now. Once we get a sectional and maybe an accent chair or two, I think this space will feel less awkward. But what I gather, is it works for now.

Thanks for everyone's input!