Which is better - the pad on the microphone, or the pad on the mixing console?
There are two reasons why you might want to use a pad (an attenuator that reduces the signal level, usually by 10 or 20 dB). The first is that the sound coming into the microphone is very loud. The other is that you only want to use that signal at a very low level in the mix, and it is more convenient if the fader can be higher up the scale.
Modern microphone capsules can cope with extraordinarily loud sounds - so loud in fact you would suffer permanent hearing damage if your ears were exposed for too long. Probably the worse case would be an operatic soprano at close range, but kick drums and guitar cabinets are pretty loud too.
Firstly, the capsule of the microphone has to be able to handle the level or there is nothing that can be done to rescue the signal. It would be unlikely that the capsule would be damaged, but there is the possibility of distortion. That would be rare though.
Much more likely is the possibility that the capsule of a capacitor (condenser) microphone will put out so much signal that the internal amplifier of the microphone is overwhelmed. In this case, the distortion is actually coming from the microphone, so inserting a pad at the mixing console will not help.
So if the mic has a pad switch, click the pad in. This will cut down the signal before it gets to the mic's internal amplifier. If the mic doesn't have a pad, then you'll have to back it off from the sound source.
But suppose that the signal from the mic is high, but the internal amplifier isn't clipped. You have turned the gain all the way down on the preamplifier in the mixing console (or external preamplifier) and the level is still too much.
You could still click in the pad on the mic, but it would actually be better to use the pad on the console. Why? Because this will not only reduce the level of the signal, it will reduce the level of the noise produced by the microphone's internal amplifier. If you use the pad on the mic, it will actually degrade the signal-to-noise ratio as the noise from the internal amplifier comes through at full blast.
Granted, this will be a subtle difference. But if you understand what the difference is and why, then it shows that you are in charge of the sound engineering process and have the ability to work to high standards of noise management.