"No, we do not drink water."
Translation:Nac ydyn, dyn ni ddim yn yfed dŵr.
In short, the yn is needed to make the link between the verb (dy)dyn in dyn ni ddim (we are not...) and the verb-noun yfed (drinking, to drink). The notes have more examples. We recommend that you read the notes for each section before starting it - they have been written to try and introduce teh patterns being used and to answer the common questions that learners have when meeting the topic for the first time.