A correctly-stated version of the problem is to ask for $V_p\times_C V_q$ to be equal to $V_p$ if $p=q$ and $\operatorname{Spec} K$ for $p\neq q$. The choice of what space the fiber product is over really matters here: for instance, if you try to take the fiber product over $k$, the $p\neq q$ case won't give you $\operatorname{Spec} K$.
Your idea of turning this in to a tensor product computation will do what you want. Your smooth integral curve is birational to a smooth projective curve, so the complement of any finite number of points on it is affine, and we can find an affine open subset of the curve which contains $p,q$ for any two closed points $p,q$.
Now we have $R$ which is an integral domain with two distinct maximal ideals $m,n$ and we want to show that $R_m\otimes_R R_n\cong Frac(R)$. There's an obvious map from this tensor product to $Frac(R)$ given by $a\otimes b \mapsto ab$, and it's not hard to see that it's both injective and surjective. Alternatively, one can note that this is just the tensor product of the localizations $S^{-1}R\otimes_R T^{-1}R$ where $S=R\setminus m$ and $T=R\setminus n$, so as $m,n$ are comaximal, this gives that all nonzero elements of $R$ are invertible and thus the tensor product is $K$.