I was walking home from school yesterday when I saw my sister on the other side of the road. She was talking to a friend of hers. I waved to her but she didn't see me because she wasn't wearing her glasses.
Explanation: The past continuous is used for an action that was in progress when another action interrupted it (e.g., 'was walking' when 'saw'). The past simple is used for the interrupting action or a completed action in the past (e.g., 'saw', 'waved', 'didn't see').