Fry bacon until crisp, drain on paper towel and set aside. To the bacon grease add the chopped onion and fry until translucent (if you don't add onion do not throw out grease but add to next step.)
Add diced potatoes and enough water to just cover the top of the potatoes. Bring to a boil and boil covered about 10 mins. Cook until fork pierces a cube -- it won't take long. Reduce heat to medium low and add sour cream and stir. Cube Velveeta cheese and add to sour cream mixture stirring until cheese is melted and blended with soup. Crumble bacon and add to soup and serve.