Translation:The ceilidh was good, people were singing.
bha daoine a' seinn = people were singing
sheinn daoine = people sang
Duolingo hasn't introduced the simple past yet, but to form it (for regular verbs and in the independent form) you lenite the root of verbs beginning with lenitable consonants, prefix dh' to the root of verbs beginning with vowels, and do both for verbs beginning with f + vowel. Here seinn is both the verbal noun (the a'/ag x form used for the continuous tense constructions) and the root, but many/most other verbs have different roots and verbal nouns.
e.g. lenitable consonant - bha mi a' ceannach - I was buying vs cheannaich mi - I bought (verbal noun ceannach, root ceannaich)
non-lenitable consonant bha mi a' sgrìobhadh - I was writing vs sgrìobh mi - I wrote (verbal noun sgrìobhadh, root sgrìobh)
vowel - bha mi ag ionnsachadh - I was learning vs dh'ionnsaich mi - I learned (verbal noun ionnsachadh, root ionnsaich)
f + vowel - bha mi a' fàgail - I was leaving vs dh'fhàg mi - I left (verbal noun fàgail, root fàg)
f + consonant - bha mi a' freagairt - I was answering vs fhreagair mi - I answered (verbal noun freagairt, root freagair).
There is a very small number of verbs with irregular past tenses where the simple past tense is not based on the root.