Yeah, we were wondering that too. What is up with the ending?
But to understand the ending, we have to back up a bit to a short transitional scene in which a modern-day Historian is killed by a knight who slices his neck as he flies by on a horse. The Historian's wife rushes over, screaming, "Mike!"
We see the policemen investigating the murder and following the path that Arthur and the knights take as they continue their search for the Grail. Suddenly, as the film comes to a close, we have a shot of Lancelot being patted down, his hands on a police car. Then, just as the climax of the movie is about to unfold, a whole squad rolls in and stops Arthur's army in its tracks. The historian's wife gets out of a car and accuses Arthur of being her late husband's killer.
Let's leap to Arthur's defense. First of all, Arthur doesn't have a horse—he has Patsy and some coconuts. Secondly, if we go back and watch the clip slowly, the murderous knight is wearing a helmet, not a crown, and isn't wearing Arthur's armor (though it's hard to tell exactly what he looks like, it all happens so fast). Well, no one ever said eyewitness testimonies were accurate, so Arthur is bagged and taken away and—just like that—the movie ends.
It may be a very sudden and shocking conclusion, but when we think about it there's really no other way for it to end. The knights can't complete their quest… because these guys can't complete anything. But having them fail on their quest doesn't seem to be in the spirit of the movie—that's too much of a downer.
We also have to take into consideration Monty Python as a comedic group. If you've seen their Flying Circus show you might be familiar with The Colonel, who will jump into a sketch, break the fourth wall, and shut down whatever's happening by proclaiming it "too silly."
In fact, Monty Python's first full-length movie (which was a collection of their sketches) was called And Now for Something Completely Different, highlighting their other favorite change of direction in a sketch being abandoned… with no obligation to explain why.