'Stod' is the past tense right? Is that a general indicator that a continuous action took place in the past?
Yep, "stár og ser på" is present and "stod og så på" is past. To make the past continuous, just change the tenses of both verbs.
I don't understand one thing. Do you use the same word for "watch" and "see"? That is really confusing. Couldn't it be "stod og kige"?
yes, you are using the same word. "Kigge" is more "looking at" something. Or: "Vil du kigge forbi til en kop kaffe?" - Would you like to come over for a cup of coffee?" "Jeg ser på dig" = I am watcing on you, or: I am looking at you. "Ser du mig" = Do you see me? "Ser du PÅ mig?" = "Do you look AT me"? If you should say the sentence in past in the way you suggest, it woud be: "Hvilket dyr stod du og kiggede på?" Remember the "DE" in the end of the word when it is past.
How can you tell if they are saying "which animal did you see" or "which animals did you see?"