Learn Russian: Читая этот текст, он понимал, что мне было очень трудно. - While reading this text, he understood that it was very difficult for me.

Читая is an imperfective verbal adverb. You form it by taking the "they" form of the present tense (читают), dropping the -ют, and adding -я. It describes an ongoing background action happening at the exact same time as the main verb (понимал), so it translates to "while reading" or "as he was reading."

Who is doing the reading in this sentence? Can it be "me" since the second part says мне было?

The person doing the action in a verbal adverb must ALWAYS be the same as the subject of the main verb it attaches to. The main subject in that first clause is он (he), so he is the one reading. It cannot be мне (me).

The sentence is in the past tense (понимал). Does the form of читая change to show that it happened in the past?

No, imperfective verbal adverbs like читая do not change for tense. They simply show that the action happens at the exact same time as the main verb. Because the main verb (понимал) is in the past tense, читая automatically takes on that past context: "while he was reading."

Why is it мне было очень трудно instead of something like я был очень трудный?