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Ok, so here was the situation. His unit put prey on my unit of widowmakers (he was circle, I was khador) He charged the widowmakers and my warcaster. he killed the widowmakers first and then immediatley put prey on my warcaster. Is that how Prey works as it does state it moves to another unit, but would he get the benefit for that turn of combat?

Yes, he would get the benefit because each model's combat actions are resolved one at a time. And the instant the Prey target is destroyed you must choose a new target. This is done before the next model makes its attacks.

Hotswapping Prey has been a tactic since Prey was first introduced.

Fair enough.

A good idea if he Preys a unit is to run one member backwards - he can't swap prey if even one unit memeber is still alive, and losing the use of that trooper is generally worth it to stop Prey hot swapping.