Both!

At any level of playing you should be looking for songs to play.  That's why we learn all the skills & ideas, to apply it to music in the form on songs.  Start by working on songs that match the skills you have or are currently working on.  This gives you a chance to play real music in time which is a skill in its own right.

At any given point it's also a good idea to try a song slightly above your skill level (or way above!).  That can be frustrating, but it also shows you what you still have to work on in order to improve.  And if you never challenge yourself You aren't going to gradually improve.

It's a balancing act for sure.  And there's only so much time in the day, so you have to prioritize.  But learning a song will almost always motivate you.  Hope that helps!