In this usage mi (or fe) is not a pronoun but an affirmative particle - it just indicates that the verb which follows it is an affirmative statement, not a question or a negative. The use of mi/fe is entirely optional, although mi is common in the north-west Wales dialects. If mi/fe is used, then the verb mutates. Sometimes the verb mutates even if the particle is not actually being used.

• mi welais i... I saw...
• fe welais i ... I saw...
• gwelais i.... I saw...
• welais i... I saw...

They are both valid ways of expressing the simple past tense.