Translation:Sweden is cold. Alaska is colder. Siberia is the coldest!
The last sentence is an emphatic one - this is usual with superlative forms of adjectives. An emphatic sentence puts the thing to be emphasised (Siberia, here) at the beginning of the sentence, and that means that yw/ydy is used instead of mae. https://www.duolingo.com/comment/13676804
Marked incorrect for using yn instead of 'n in the middle statement - is this correct?
Yes. It is correct to abbreviate yn to 'n following a vowel when yn is being used as a linking word to introduce verb-nouns, nouns and adjectives. It is not abbreviated when it is the preposition yn (in, at).
In the spoken language yn is sometimes not abbreviated if it is being emphasised - "Dw i yn mynd!" ("I am going!") - but not in writing, where it is considered a fault.
More here on the three uses of yn and the different mutations they cause.