As the title suggests, we are planning to travel to Faro in late January. The question is: can we transfer from our flight from Newark directly to a flight to Faro and go through passport / immigration in Faro or do we go through the whole passport / immigration procedure in Lisbon? What about return: Faro to Lisbon to Newark?
The border is Lisbon in both directions.
https://www.lisbonairport.pt/en/lis/passenger-guide/what-you-need-to-know/connecting-flights
You'll enter the Schengen Zone in Lisbon and exit it in Lisbon as well. So that is where
the immigration procedures take place.