I'm just going to copy and paste a chunk from the Time/Ultimecia FAQ at GameFAQs which explains the ending.

PRELIMINARY NOTE: The fact that TC reacts to thoughts/feelings/memories and can be influenced by willpower is based on what Laguna says in his speech about "Love, friendship and courage!!!" prior to entering the Lunatic Pandora. Now, from the FAQ:

[...] As time de-compresses [due to Ultimecia's defeat], the party are able to get back to their own time in the same way that they got to Ultimecias time; by concentrating on where they want to go, and believing in eachother. However, Squall is still not able to fully rely on his friends, so he is not able to make his way back. Instead, he ends up at the Orphanage in the past, meeting Edea and giving her the idea of SeeD and Garden. Ultimecia then arrives and gives Edea her powers. You might ask why she goes to exactly Edea and gives her her powers, instead of some other random sorceress. Considering that TC reacts to thoughts and emotions, an answer seems at hand. According to the Tutorial, Sorceresses are believed to want to avoid spreading their powers too thin, so Ultimecia would be wanting to find a sorceress so she can die in peace. But on the other hand, she also refused to yield to Squall. This means that the two strongest things on her mind after defeat would be a sorceress and Squall. It should then come as no surprise that TC sends her to Squall and a sorceress at the same time!

Squall then makes another attempt at getting back, but yet again fails, and gets stuck in some sort of timewarp; a mixture of various times, reacting to his own thoughts, emotions and memories (not surprising, since TC functions in the same way). As said above, he ends up alone in a barren wasteland because he is still stuck in his 'lone wolf' attitude. As he tries to simply walk his way out of this place, he realises eventually that he's not getting anywhere, and that he's stuck. Affected by these thoughts, the time warp now alters, and when Squall turns around, he finds that he is literally stuck on a tiny island in the middle of nowhere. Collapsing, he starts thinking about Rinoa, and yet again, the time-warp he's in reacts to that, but since his emotions are full of despair and hopelessness, what he sees is inevtiably tainted by just that. Because of this, he sees his memories all twisted, and even sees things which haven't happened(like Rinoas helmet shattering in space). Finally, he collapses from the strain. There is some dispute whether or not Squall dies here or not, but either way, what happens next is the same: Rinoa, through her love for Squall, is able to make her way to him and save him (remember that emotions were the key in this situation). As they embrace, they both break free from the time warp, and can proceed to the Garden, where a big party awaits.

It should be made clear now, that if we were to stay on after the end of the game, we'd eventually see Ultimecia be born, rise to power, and conquer the world. But before she'd be able to compress time, Squall and Co would arrive from the past and kick her ass. Ultimecias inevitable rise to power would be a necessary sacrifice for her defeat. One good thing is that if Odine is correct in his assertion that Rinoa was the only sorceress left after Adels defeat, then Ultimecia puts an end to the succession of witches forever. After all, she would be the only sorceress of her time, and she doesn't pass on her powers to someone in her own time, she passes them on to someone in the past. This means that after Ultimecias death, there would be no more sorceresses!

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Hopefully that clears up some things. If some things about the ending still seem confusing, please ask in more detail.

VERY BRIEF SUMMARY: TC reacts to thoughts/feelings/memories, so because Squall is still a 'lone wolf' he ends up alone and sees only twisted images due to his feelings of despair influencing his memories. Finally though, Rinoa is able to use her love for Squall to find him and wake him up/ressurect him, and using their combined love, they can make it back to their own time.