I'm wondering what would be better to lose a few pounds of fat or gain a few pounds of muscle. I'm 5'!0" and 150 pounds and I know I'm not fat. Just wondering which way would look better.
Was that 5'10" or 5'0"? I assume 5'10", since you say, "I know I'm not fat."
Muscle will help to turn-up your metabolism and burn some fat. Plus, the benefit of adding muscle (without bulking) is fat loss. But, if you prefer a softer (less muscular look) than losing the weight might be better.
You need to determine a goal of being: 1. low body fat, 2. muscular, 3. toned, 4. in a target weight range, etc. Or, a combination of these things. From there, design your workouts, diet, etc. around this goal.