Gerunds vs. Participles in Spanish

[satchrocks]

As far as I can tell, the equivalent of adding the letters "-ing" onto a verb (running, flying, etc) in English is achieved in Spanish is by adding "ndo" to the infinitive - esperando, mirando, etc.

Is this acting as the participle (adjective form) or gerund (noun form) of the verb (or both)?

For example, which is correct:

Dormiendo es mi actividad favorita.
Sleeping is my favorite activity.

OR

La muchacha esta dormiendo ahora.
The girl is sleeping now.

Thanks in advance!