Yes, you can use "kion" to introduce a relative sub-clause. Your sentence "Tio estas kion mi vidis!" is correct.
The interesting thing about this example sentence is that it touches a detail of Esperanto grammar that is not well documented in our most complete grammar resource PMEG. Let me explain.
A grammatically more complete way of saying "That is what I saw" would be "Tio estas tio, kion mi vidis." Now in constructions of the form "tio(n), kio(n)", one has the option to drop "tio(n)". PMEG says that normally dropping "tio(n)" is only permitted when it is in the same case as "kio(n)" (i.e. if both have the -n or both lack it).
However, PMEG also acknowledges that there are some contexts in which "tio" is commonly dropped from "tio, kion", but PMEG does not explain in detail in which contexts this is permissible. It only gives the example of sentences with "jen":
Jen [estas] tio, kion diris Aĥitofel! → Jen kion diris Aĥitofel!
By searching for the patterns "tio estas kion" and "tio estas tio kion" in the Tekstaro de Esperanto (an Esperanto corpus consisting of texts by well considered authors, inclusing many texts by Zamenhof), I realized that in such a context too, "tio" is commonly dropped despite being in a different case than the following "kion". Already Zamenhof himself dropped "tio" in such a context.
I will suggest to Bertilo Wennergren, the author of PMEG, to mention this context as another example, in which "tio" can be dropped before "kion", so as to make his explanation more complete (he has already previously made changes to PMEG based on my suggestions).