Yeah, so how exactly do you do it? I tried pressing the piano, romancing the sim, all kinds of stuff but I can't seem to figure out how to do it?

If it works like it did in TS2 you need to click on the Sim you are going to serenade- it will probably be under romantic interactions and may not be immediately available. I am not sure since I have not tried it yet myself- I just started a new Sim and she's not met any guys yet - so no opportunities to serenade someone or be serenaded- she is still waiting for the Welcome Wagon to show.

Dunno about the other instruments, but with guitar, serenade comes at a pretty high skill level... 7 I think?

My LVL 10 guitar did it spontaniously, like she owed an apology and seranaded first, but I am not sure. She was late to a party.

My sim has 10 in the piano skill and I tried getting the romance interaction all the way up to "irresistable". Didn't work for me :S

You have to click on the musical instruments I think. My sim is level 10 in drums and during a party with his romantic interest around, I clicked on the drums and there was an option to serenade.

Yeah you do need to click on the instrument, that's what I did. I don't think there's any other way. Your sim needs to be very skilled with that instrument (I'm pretty sure it's 7 too, the game notifies you). My sim serenaded her fiancee with her awesome bass skills which was cute.

Hmm... I think it might have been because the sim I wanted my sim to seranade was a homeless sim (Pianist to be exact). And all in all that neighbourhood acted weird.