This quote by Polyphemus, the Cyclops, to Odysseus is classic situational irony in which the giant admits to being defeated by a mortal.
The Cyclops arrogantly underestimates his opponent. As a giant with massive strength he naturally assumes his nemesis to be a giant with massive strength. Goliath overestimates himself here.
The situation is an analogy, a kind of retelling of the end of the Trojan War in which Odysseus, through his cunning, burned Troy to the ground with a wooden horse. They too expected to be defeated by a giant armed force. Instead of a horse, Odysseus uses a little wine to disarm the giant and gouge his eye. It's not the first time in literature that wine and blood have been used in this cause-effect fashion.
The conciliation is filled with Homeric epithets (nicknames) when Cyclops calls Odysseus "you--small, pitiful and twiggy." It shows conflict between the mortal and immortal in which Homer, a humanist, champions mankind.
And it reflects one of the great themes in literature: blindness. Physical blindness is always an indiction of moral blindness. The Cyclops is being punished for hubris and living with no law.