Learn French: Le passager paniquait quand l'ambulance est arrivée. - The passenger was panicking when the ambulance arrived.

This sentence perfectly shows how to talk about an interruption. paniquait describes an ongoing background action (he was panicking), so it uses the imparfait. est arrivée is a sudden, completed event (the ambulance arrived) that happened during the panic, so it uses the passé composé.

Could I translate paniquait as just "panicked"?

Not in this specific context. Here, it specifically means "was panicking." If you meant "the passenger panicked" as a sudden reaction when the ambulance arrived, that would be a completed event and you would use the passé composé: le passager a paniqué.

Why does arrivée have an extra -e at the end?

In the passé composé, verbs that use être as their helping verb must have their past participle agree with the subject. The subject here is l'ambulance, which is a feminine noun, so we add an -e to arrivé to make it arrivée.

Why does this sentence use est instead of a for the ambulance arriving?

Most French verbs use avoir to form the passé composé, but arriver is part of a small group of verbs relating to motion or a change of state (often remembered as the Vandertramp verbs) that always use être.