In this episode we see a powerful magician named Montiek, who once was an ally of Skeletor. Montiek has captured an army of former evil villains that were once the most powerful beings on the universe. Some of them are Blackbeard the Pirate and the Mighty Hannibal along with his elephant.
Montiek as heard of a man who is stronger than any living mortal and wants him in his army, He-Man. Montiek fools He-Man into thinking that there is a giant destroying his village and felds in Polonia, but really it is a test to see if He-Man is worthy enough to be in his army.
Eventually He-Man with Orko, figures out that there is no giant and knows of Montiek's plan to capture him. He-Man takes Montiek down and lets all the former soldiers out of the dome where they were trapped.
Meanwhile when all of this is happening, Skeletor is hoping Montiek will capture He-Man so that he can finally rule Eternia. But he knows He-Man can pass any of the tests and won't be easy to capture.
The final moral of the episode is History.... There were famous people long ago and were very real. History is like a great adventure story and really happened as Prince Adam put it.