Wolves did not disclose the fee paid for the 18-year-old striker, who has signed a five-year contract, but said it was a club record. Media reports had indicated the fee was around £35 million.
Silva was part of the youth system at both Porto and Benfica and made his first team debut for Porto, his hometown club, in August 2019 as a 17-year-old.
The forward has scored one goal in 12 Portuguese league appearances for Porto and spent time last season with their B-team in the second division.
Wolves chairman Jeff Shi said Silva was a natural talent who was ready for Nuno Espirito Santo's first team.
"We've been following Fabio's development for a long time. He's a player that you only need several minutes to see his natural football talent. In recent years, Fabio has been developing very fast and now has proven himself in Porto's first team, which is a top squad," he told the club's website.
"Our head coach's requirement for quality is very high, but he thinks Fabio is an important signing who will help the team immediately this season," he added.
Wolves' previous record signing was Mexican forward Raul Jimenez who joined the West Midlands club from Benfica for £30m in 2019.