This is actually the final episode in production order and it probably would have made a good finale for the show. Throughout the episode it gets confirmed that Zelda actually loves Link, even though she hates to admit it, and at the end they completely destroy Ganon's lair and its Evil Jar. So, it's probably best to view this as/at the end.
The main idea of this episode is essentially a role-reversed Spirit Tracks. Ganon plans to zap Zelda into the Evil Jar with his new Magic Wand toy, but she reflects the magic and Link gets hit instead. Like in Spirit Tracks only his body gets abducted, while his spirit stays by Zelda's side, who's the only one, who can see Phantom Link, because she's apparently in love with him.
Now, for Link this whole situation is perfect to be even a bigger jackass than usual. But after Zelda called him useless so many times, I guess it serves her right, how Link keeps making fun of her swordplay. They had to make it look like zapping things with some Magical Sword is actually not easy, because otherwise Zelda really wouldn't need Link at all. He even gets her in danger by hilariously announcing all over Ganon's lair that she loves him.
Zelda then goes all Daenerys and torches the place (by pushing down a torch), while Link blows up the Evil Jar with a bomb that he got from a Stalfos, who really are afraid of Link for some reason, even if he's just a ghost... They never really die, they all just get transported into the Evil Jar. If anything, the Stalfos should vigorously try to defend the jar at all costs, instead of letting Link blow it up.
"Zelda in love with Link? Arrgh, how disgusting!" - Ganon