Pencereden baktığımda dostlarım meşalelerle yürüyordu ve ben onları selamladım.

baktığımda breaks down into four pieces:
• bak- (root “to look”)
• -tı (past tense marker → baktı “looked”)
• -ğım (first-person singular verbal noun/relative clause marker → baktığım “that I looked”)
• -da (time-conjunction suffix “when”)
Altogether baktığımda = “when I looked.”

Turkish uses -yor for continuous aspect. When you add the past marker -du, you get past continuous:
yürü (root) + -yor (progressive) + -du (past) = yürüyordu (“was walking”).
Simple past (yürüdü) would mean “walked,” implying a completed action rather than an ongoing one.

In Turkish, third-person verbs don’t show number. Whether the subject is singular or plural, the verb stays the same.
You could optionally say yürüyorlardı (adding -lar to indicate plural), but it’s not required.

-le/-la is the instrumental/comitative suffix meaning “with.”
meşale = “torch,” meşaleler = “torches,” and meşalelerle = “with torches.”

Turkish verb endings indicate person, so selamladım alone tells you the subject is “I.”
Adding ben is optional and is used here for emphasis or clarity (“I greeted them,” stressing that it was me).

onlar = “they/them.” The suffix -ı marks a definite direct object (accusative).
So onları = “them” as the precise object of selamladım.

Yes. In writing, you may separate an introductory time clause with a comma:
Pencereden baktığımda, dostlarım meşalelerle yürüyordu…
It’s optional and depends on your preferred style.