Well, you have to replace the ellipse() @ #24 w/ something else.
Either 2 line() or a PImage of an "X".

Anyways, here's a more compact version of your program:  

final static byte DIM = 20;

void setup() {
  size(500, 400);
  frameRate(15);
  smooth();
  ellipseMode(CENTER);
}

void draw() {
  background(-1);

  for (int x = mouseX; x < width; x += DIM)
    for (int y = mouseY; y < height; y += DIM)
      ellipse(x, y, DIM, DIM);
}

void mouseMoved() {
  fill( (color) random(0x1000000) | #000000 );
}

I guess I've made it! Check it out:  

final static byte DIM = 20, HALF_DIM = DIM >> 1;

void setup() {
  size(500, 400);
  smooth();
  strokeWeight(2);
  frameRate(15);
}

void draw() {
  background(-1);

  for (int x = mouseX; x < width; x += DIM)
    for (int y = mouseY; y < height; y += DIM) {
      line(x, y, x + HALF_DIM, y + HALF_DIM);
      line(x + HALF_DIM, y, x, y + HALF_DIM);
    }
}

void mouseMoved() {
  stroke( (color) random(0x1000000) | #000000 );
}

So you wanted to compress all of those ellipse() statements into a compact neat for loop block?
I guess I got it. Dunno whether that's exactly you're looking for.

About color, you mean each circle of the "X" having their own fixed color?
Still didn't implemented that yet. 

Just some tips:

If all of your ellipse() functions are meant to have ellipseMode(CENTER),
avoid setting it all the time inside callback function draw()! Just set it once within setup() instead! 
Moreover, ellipseMode(CENTER) is the Processing's default mode already! 

If a variable is meant to be used inside 1 function/method only and its previous value can be discarded,
don't declare it as a global field one; rather, declare it as a local variable inside the only function which uses it.

You see; variables r, g, b are used inside callback function mouseMoved() only.
And their values are renewed every time. So no need to remember their previous values.
So no need to make them fields of the sketch!
And besides, local variables have better speedier access than field ones! 

Omg you're a life saver! I am completely late for two weeks of processing assignments and thanks to you I've gotten two of the 6 parts covered. I hope I don't get drop from class.

Can you email me please?

mykovn@yahoo.com

Glad you've liked it! However, I prefer to correspond within this forum only.
Since other people can learn from it as well!  

Here's a very obvious idea to get individual colors for each of the "X" circles:
Just move fill() call inside mouseMoved() into xMen()'s for loop block instead.
You can even use 2 fill() before each ellipse() statement for more color individuality. 

P.S.: Try -> ellipseMode(RADIUS);  or even ellipseMode(CORNERS);  

void xMen(int num, int dim) {
  for (int i = -num*dim, ii = -i; i <= ii; i += dim) {
    fill( (color) random(0x1000000) | #000000 );
    ellipse(mouseX + i, mouseY + i, dim, dim);
    
    //fill( (color) random(0x1000000) | #000000 );
    ellipse(mouseX + i, mouseY - i, dim, dim);
  }
}