"Deus ex machina" literally means "god out of the machine." It's a term that refers to a moment in a narrative when you can feel the author's hand doing things arbitrarily.
It's like this: imagine you're watching an action movie, and your hero is at some point totally backed into a corner, surrounded by enemies, with no hope of escape. What happens then? Surprise: somebody with a big gun appears totally at random and shoots up the baddies, freeing our hero at the last minute.
You know the drill. We all tolerate it, but sometimes you just want to roll your eyes.
The funny thing about Time Bandits isn't that it makes use of that device, because it does. The funny thing is that it does it so literally. In this film, God actually comes down from heaven and smites the villain just as he's about to ice the heroes for good.
Moreover, this device actually works here because, hey, we really are dealing with a cosmic battle between good and evil. It's a playful gag, changing the rules of what a dramatic climax can be, without losing the feeling of an epic finale. The Pythons are having their cake and eating it, too, riffing on why you shouldn't use deus ex machina while clearly reveling in their use of it.