As is often the case when a learner asks 'Which one is correct?', the answer is : 'Both! They are both correct, but you use them in different contexts. It all depends what you want to say!' [See Phil's Discussion about the Binary approach to language learning). Let's take a look at your tenses: If you have two past simple tenses - such as 'did not see' and 'hid' - it suggests that there are two actions which happened sequentially, often with one being a reaction to the other. So, if you say, 'She didn't see me because I hid behind a tree', this puts the emphasis on your action of running to hide behind a tree. We'd understand that you were perhaps alone in a garden to start with. But WHEN you saw the other person come into the garden, you THEN went to hide yourself behind a tree. However, if you have a past simple tense ('did not see' )along with a past continuous tense (' I was hiding'), this emphasises your position behind the tree and - most importantly - the fact that you were already hiding behind the tree BEFORE the other person entered the garden. We use past continuous to describe a situation or activity which was ALREADY IN PROGRESS at the time when the other action occurred, and possibly continued after it.

Both are correct. The first one is more common. You were hiding (continuous sense) and she did not see you ( a short, simple action). "she did not see me because I hid behind a tree" is also correct, but less common because although you hid behind the tree, we would think that you stayed hiding (for a few minutes, i.e. continuous) so we would use 'hiding". You stayed/remained hidden while she was looking for you. Both are correct, but the difference is the idea of time; how long you were hidden while she searched.

You can use either form. "she did not see me because I hid behind a/the tree" = past tense you are telling of a past event describing that you hid behind a tree. Hid = past of to hide. "she did not see me because I was hiding behind a/the tree" = also a past event. You are describing what were you doing in the past you were hid+ing. It is two different ways to describe the same event and actions you did in the past. One is using one tense and the other a different tense you are free to choose. You have two choices 1 use the old word "hid" that is the past:::: or 2 use the verb+ing form "hiding". Hiding seems to be the preferred modern way. And hid is something that was once taught using long tables In English classes. You hid generally implies you did it when she was looking for you. Hiding generally suggests you were already hiding.