。
We danced around the bonfire.
Literal
We [topic-は] bonfire [of-の] around [object-を] dance-and went-around.
踊って回る chains 踊る ('to dance') and 回る ('to go around') via te-form — 'dance and go around' = 'dance around in circles.' This pattern [verb]+て+回る ('go around doing [X]') is a productive way to express distributed or circuitous action. たき火 ('bonfire') is a compact compound — 焚き ('burning') + 火 ('fire').