It really depends on what you are doing.
If you are connecting to a site with HTTPS that has AES 256 encryption or similar, then they can't see what you are doing either way. They can see what sites you are connecting too, but password fields, text boxes and any information on that HTTPS page is basically encrypted. Even without a VPN, HTTPS with AES 256 is fine on it's own.
If the connection is just HTTP, then a VPN would encrypt over your connection. HTTP on it's own is not encrypted and can be viewed very easily, using a packet scanner/tracer. A VPN would encrypt over the HTTP connected, so packet scanners/tracers won't be able to view the information correctly. It would just appear to be a jumbled mess of information.