Larissa, welcome to the forums. I'm looking forward to your further input, in this section or any other.
Thank you for the warm welcome! Work is keeping me busy at the moment, and will remain so until mid-September, but I'll try to drop by whenever I have the chance.
There is something remarkably astute about your post, but I'm struggling to find an angle for comment and discussion... Vague IS sometimes good, strange as that might seem on the surface. I'm currently reading Snow Crash by Neal Stephenson and one of my main complaints about the book is that he explains stuff that he should just immerse us in and let us figure out for ourselves: neither Tolkien or Malory is ever guilty of that. . .
Oh no! It's not too good when discussing in a discussion forum is a struggle! It does make sense, though: I didn't exactly ask anything, or offer any obvious talking point. I'm blaming my lack of experience discussing fiction with people other than myself, but hopefully I'll get up to speed soon!
Anyway! I write fiction in general as a hobby, and I think the advice to "show, don't tell" is overrated. It makes for a cinematic experience, but it takes away some of the freedom I personally enjoy having as a reader - if I wanted a cinematic experience, I'd just go watch a movie! On a basic level, it's pretty simple: if you write "The queen was beautiful" I can imagine anything from Pre-Raphaelite paintings, to Angelina Jolie wearing a flower wreath, to an extremely historically accurate (and not necessarily beautiful by today's standards!) image I've never seen before without my own mind's eye. If you write "The queen was fair, for her face was as lilies and roses, and her hair as much refined gold, and her body was as a willow, and in truth none could see her and fail to cry 'Here is a lady that is a pearl of womanhood, and a wise wife fit to a king!'" you're telling me a lot about the queen...... but not really. On surface, sure, she's probably your typical blond, slender, tall, fair-skinned, delicate-looking queen, but if that doesn't appeal to you as "beautiful" you can almost as easily say her skin was soft, her hair was shiny, her body was strong and solid, and she was generally striking and imposing. The text allows you to do that. If you go the cinamatic route and tell me her eyes are emerald and her hair is honey-colored and she's taller than the protagonist, it still conjures up an image and it's not bad writing per se, but it takes away a choice, and you have to be careful. The way I personally write and read, I see fiction as a compromise between perfect freedom - that would be daydreaming - and perfect accuracy - that would be science. Sometimes you have to let your reader lead you and withhold details you're dying to say but aren't going to (how much backstory is too much?), and sometimes you have to stand your ground and say something is too vital to a character to risk the reader imagining it "wrong" (Luthien would never be as real if we didn't know of her shadowy hair and nightingale voice!)
I find that our modern day notion of authors as particularly creative makes them feel like they have to prove that they have imagined every single detail better than you can and that is why you should trust them to be telling a good story. If imagination isn't inherent to the human being, then forcefully ordering his mind's eye about is the only way you're likely to get anything good enough for the story you're trying to tell.
But back in Malory's day, saying you had sources was more important than painting a picture, so I think ambiguity was a feature, not a bug: "well, after I read in this book that this historian wrote based on the account of this person who was actually there, of course there are some details missing!" Even today, if somebody were to sit down with you to tell a rumor and that rumor has waaaay too many details, I think you'd be suspicious, right? I mean, is the person a sketch artist? How did they even memorize so many details? It's worth noting that in French romances (as opposed to poetry, which follow different rules), Arthur has the knights tell him what they've been up to so that his clerks can write down their adventures. So up to a certain point, "telling, not showing" actually enhances your ability to "believe" the story, depending on how the narrative is framed.
I'm focusing on descriptions here because that's a concrete example that is easy to follow, but the same idea applies to other things, such as themes (have you noticed how modern Arthuriana has a major theme - love, or betrayal, or war, or politics - and medieval Arthuriana is harder to pinpoint?), characterization (pretty much every character has been simplified nowadays, which I find funny because medieval stories are often accused of being "simplistic"), plot, rhythm, etc. A dear friend of mine who is a cinema major can't stand Malory because she says it's rambling, unconnected and unrealistic, so she can't imagine it at all - while I love how I'm free to pick what's symbolism and what's not, how stuff looks like, what the timeline is, whether or not it has some true historical gems hidden, etc.
So to get back at the initial topic: is it at all possible that we expect Malory to set his story at some point in time because our own stories demand a fixed instant where they take place, and "once upon a time" is only enough of a setting in children's literature? And a related question: by asking what Malory thought about his plausability, are we imposing our own modern literary expectations on an author that didn't particularly care about it? We never ask if the brothers Grimm actually believed parents would abandon their children in the woods - it's a plot device we're not supposed to think much about. Are the impossibly large armies in Malory a plot device to represent just how amazing the characters/kingdoms are, rather than something we have to imagine the logistics of (either to see it as an intentional exaggeration or simply to imagine it as described): are we showing ourselves what Malory meant to only tell? Is our worldview too scientific to conceive that history and fairy tale are not diametrically opposed, but Malory would have no such misgivings, and just see Merlin's shapeshifting and Uther's armies as equally part of the tale and as such, their likelihood was equally negligible, although modern readers would think the latter is possible and the former impossible? Or would that be ascribing him a worldview I fancy he would have because he's "unscientific", but actually very, very far from the truth? Does the way we answer this last question change the way we read his text?