I think the best way to choose is to write down ideas for each category, and once you find one that is possible, and most of all FUN choose that one. Good luck on your school science fair!
I've noticed that the two topics that you suggested are very, very different. Formulating a question, creating a hypothesis, or testing with an experiment are all parts of the scientific bleep, which is in line with a lab report. The other topic you proposed (build a prototype) is more hands-on and engineering-based. If you like thinking through systems and working with your hands, go with the prototype building one. If you like to experimentally test ideas that you have, do the first topic.