The English translation is perfectly correct. As for the German sentence, "was sahen wir" is correct in literature but when I lived in Hamburg, everyone used "was haben wir gesehen" almost exclusively instead. The Past Simple (Imperfekt) tense isn't used very often in spoken German, maybe occasionally or in particular regions, but generally, the Present Perfect (Perfekt) tense is used.
In general yes, but there are some words that make an common exception. Sehen isn't the most common of them, but you also hear "sah" in spoken language. More common are for example denken (dachte) or gehen (ging). People use them occasionally because it is just so much shorter to say "Ich dachte, er ging schon nach Hause" vs. "Ich hab' gedacht, er ist schon nach Hause gegangen".