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I want to start this out by saying that I've never played a game of Fantasy before. But I've been meaning to get into it for years and have just aquired a small amount of Dark Elves. Now after reading the rulebook, and talking to all the people at my store, I've learned just how effective the Magic phase can be. But what makes it so effective is what lore you use.

So my question, which may seem stupid, is which spells are better to use? Augmentation/ hex spells or direct damage/missile spells? And I guess, why, if you don't mind explaining.

It's situational, some times its better to augment/hex, some times its better to just plain hammer the enemy with blinding doom.

I agree with Hoverboy that it's situational, but if (for some reason) you have to chose, I'd go with augments. They aren't as flashy, but they win combat, which wins you games.

Even 70% kills on a unit leaves that unit able to redeploy and save its own points. Any characters can skip to other units, and you might find yourself in an advantageous, but not game breaking situation.

Beat their main unit in combat with aguments, then run down the General or BSB, and you're much further on your way to victory.

It all depends on which lore you take and what spells you get in the end (you may not get a hex spell for example).

It also is going to depend on which army you are facing. For example a Unit of 5 Chaos Knights + Character:

24 inches away - magic/shooting them is your best option (if you have lore of metal even better).
18 inches away - a bit of a grey area but I personally would cast a direct damage spell again.
Less than 18 - combat should be happening, so hex/augment away. Additional Damage spell if necessary.

Once again its all situational and depends on how well your army is doing elsewhere, can your unit hold to set up a flank charge? The magic may be needed in other battles.

It also depends on points levels. At lower level points games the low level direct damage spells can do really noticeable damage, but these spells do a consistant level of damage and don't scale up as games get bigger. On the other hand augmentations do scale up as games and units get bigger. Simply put, bigger units are having more troops augmented, more attacks are benefitting.