A VPN routes all traffic through a single server operated by the VPN provider. The VPN provider knows your real IP address, the destination IPs you connect to, and the timing of your connections. Users who want privacy from their ISP get it, but they transfer the trust relationship from their ISP to their VPN provider. A VPN provider that keeps logs is no better for privacy than an ISP that keeps logs.
Tor routes traffic through three relays: a guard node that knows your real IP, a middle relay that knows only the guard's IP and the exit's IP, and an exit node that knows the exit's IP and the destination. No single relay knows both your real IP and your destination. This distributed trust is Tor's fundamental advantage over VPNs: even if one relay is compromised, it does not have enough information to deanonymize you.
Performance: VPNs typically add 10 to 30ms latency and achieve near-wire-speed throughput. Tor adds 100 to 500ms latency and typically achieves 1 to 20 Mbps throughput. For bandwidth-intensive use cases like streaming video, VPNs are far superior. For anonymity where bandwidth is not the primary concern, Tor is far superior.