iawn acts as an intensifier, 'very', when it follows the adjective or adverb that it is intensifying:

• da, da iawn - good, very good
• cyflym, cyflym iawn - quick, very quick
• Mae e'n ymddwyn yn ddrwg iawn - He is behaving very badly.

On its own, as in the phrase Iawn, diolch in response you a greeting asking how you are, it means 'Fine'.