"What is going on here?"
Translation:Mi folyik itt?
In this context, nothing.
But the actual meanings are different:
történik - happening
folyik - flowing ("folyó" = river)
The "folyik" usage is idiomatic (unless you are actually looking at something flowing).
Why does the answer given start with 'Mi', why was i wrong to translate it as "mit folyik itt"? I thought mit was what, and mi was us?
Ah, not quite. Mi can mean both "we" and "what". Mit, however, is the accusative form of "what", when you need it as an object, like in "Mit csinálsz?" - "What are you doing?"
In "Mi folyik itt?" 'something' is doing the going-on, so that 'something' is the subject and mi needs to be in nominative case.