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WMG / The Adventures of Baron Munchausen

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Explaining the Gainax Ending
The story we're shown was all true, up to the shot of the Baron triumphantly entering the city. Then, the Baron went back to the theater and told his story to the crowd, which had taken the place of the audience. When he got to the point where he'd gone to the theater, he is so caught up in his tale that he instead makes up an absurd ending where he dies. This is when we cut back to the theater. After this last touch, all the members of the crowd who had not witnessed the battle firsthand and instead been told about it begin to doubt, prompting the Baron's "Open the gates!". The little girl's "It wasn't a story, was it?" was just a conspirational rhetorical question (sharing a truth with the Baron that few people would believe).As for the last weirdness (him disappearing), I'm not quite sure. Maybe it's actually a Sequel Hook and the Baron has just been turned invisible by who knows what other wackiness?

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