Are these sentences correct?
1 Did you hear what the teacher say?
No I didn’t listen .I was thinking about something else.

Or I should say
No I wasn’t listening I was thinking about something else.

Which one is correct? And why?

2 The girl is dirty from head to foot because she is playing in the mud.

Question

Are these sentences correct?
1 Did you hear what the teacher say?
No I didn’t listen .I was thinking about something else.

Or I should say 
No I wasn’t listening I was thinking about something else.

Which one is correct? And why?

2 The girl is dirty from head to foot because she is playing in the mud.

Answer

Question 1. Be careful with your tenses 'what the teacher SAID'. Listening is a process rather than an an event, so 'I wasn't listening' is the better response.
Question 2. Your sentence is fine

Answer

See my answer. I initially wrote it as a comment in error