Dw is the auxiliary. It's the present tense of the verb bod "be". It's followed by the subject i "I". To join the subject to the verbnoun hoffi "like", i.e. to make the present tense of hoffi, you need yn as the connector. Without the connecting yn the sentence makes no sense. Hope that explains it?
No, you're not way off base. You're right yn is basically untranslatable.
Dw i'n hoffi = "I like/am liking"
Dw i'n helpu = "I help/am helping"
Dw i'n mynd = "I go/am going"
And this is the pattern with almost all sentences. Eisiau is a weird exception though that doesn't use yn.
Dw i eisiau = "I want/am wanting"