I've been thinking to update my computer but what would be a better performance increase a fx8350 from a phenom II 965 BE or a 840 pro from a WD velociraptor 10000rpm drive
The hard drive very rarely has any affect on performance in gaming, but upgrading the HDD to a SSD will increase system responsiveness and reduce load times. The FX-8350 might give you an FPS boost.
The 8350 will most likely give you a boost in FPS during games. I don't know what graphics card you have, but the Phenom II's will bottleneck modern graphics cards. Like jerm1027 said, the SSD will increase overall system responsiveness, and you'll notice that programs open much faster and games will take less time to load.
Go with a CPU upgrade over a HDD upgrade The CPU processes the data from the HDD. You can put a really fast large HDD but if your CPU is slow then it does not matter what the hard drive can do. Check the amount of RAM in your system and also check how much RAM your system can handle and at what speeds. This could be an inexpensive upgrade that would help too.
Your explanation of how CPUs and HDDs work is ass backwards. The CPU does have to process the data from the hard drive but only after the HDD has copied the data to the RAM. Getting a new CPU is not going to increase your hard drive speed. Hard drives are always going to be the biggest bottleneck in any computer, even if you're still running a dual core AMD processor.