Ghafur Hassan Abdullah on Tuesday gave the account at the trial of Saddam, the former Iraqi president, and six others.
The seven are charged in connection with Operation Anfal, the 1987-88 campaign to suppress a Kurdish revolt in northern Iraq during the final stages of the war with Iran.
Abdullah said: "At night, I heard the screaming of women and children."
He said he fled to neighbouring Iran, but that his mother and two sisters went missing. Years later, their ID cards were found in a mass grave near Hatra, he said.
Saddam says the crackdown was directed against Kurdish guerrillas who were allied with Iran in the 1980-88 war. If convicted, he and the other defendants could face death by hanging.
Abdullah told the court that the attack started in February 1988 against his village near the Kurdish city of Sulaimaniya. Iraqi planes gave cover to advancing ground troops, who shelled Kurdish communities with artillery, he said.
He turned to Saddam and said: "Congratulations, Saddam. You are in a cage."
He demanded compensation for the loss of his family.
Saddam reacted angrily when lawyers described Kurdish guerrillas, known as peshmergas, as freedom fighters.
"You are agents of Iran and Zionism. We will crush your heads," he said.
He argued that the guerrillas were rebels and "in any country in the world where there is rebellion, the authorities ask the army to defeat it".
The prosecution demanded that Saddam's statement should be considered a confession. The presiding judge initially rejected, but took note of the request when the prosecution threatened to walk out.
During the session, Saddam also demanded that "neutral" experts should examine the identities of the witnesses and the bodies of people allegedly found in mass graves.
Kurdish farmer Mahmoud Hama Aziz, another trial witness, said he lost a brother in fighting with Iraqi forces in 1987, months before their village was razed.
Aziz said through a translator: "They [Iraqi forces] stole everything in the village, then burned it down."
Aziz said he fled to the Iranian border with two friends. He left behind a sister-in-law and her five children, who later went missing. In 2004 he identified the bodies of four of them in a mass grave in northern Iraq.
Tuesday's session is the fifth since Saddam's trial on genocide charges against Kurds opened on August 21.
On Monday, Saddam accused Kurdish witnesses of trying to create ethnic divisions by alleging chemical attacks and mass arrests in their villages.
The prosecution 180,000 people were killed in Operation Anfal.
A separate trial into the killing of 148 Shia in Dujail after a 1982 assassination attempt against Saddam is to deliver a verdict on October 16.
Saddam and seven co-defendants face the death penalty.