His magic is mainly elemental. In this part, a magical terrorist tries to throw a fireball at the prince, and the spy secretly blows it back at her with a gust of wind (that was pretty exciting).
Because he has saved the prince's life, the king rewards him by making him part of the city's elite guard, not knowing he's a magic-user. He has to cope with being deep undercover and constantly in danger of execution. There are a few other spies in the city who know who he really is, but most of them are not magic-users.
His mission (as he knows it) is to protect the princess, who has just come into her own magical powers. This is an emergency, because of her father's beliefs. The good magic-users send the spy to protect/instruct her. They've trained him for many years, so he's homesick, which I feel she's portrayed well. He was never trained to be a spy, and he could have lived freely in any other part of the world. This city is a little awful, in a 'Cold War behind the Iron Curtain' sort of way.
His other mission is to fulfill some prophecy (not revealed to the reader yet) related to the prince. He knows of this, too, but I'm thinking there are some terrorists among the magic-users who are more intimately familiar with it and okay with sacrificing him and everyone else - the prince and princess and any other characters - if it attains their goal of punishing the king and toppling his regime, under which both good and evil magical people have all suffered. There's some interesting stuff (which can get heavy-handed in our fandom's fics, but this author is handling it well so far) related to prejudice and so on.
It's less complicated than it sounds, because it is fanfic - most of this plot reinvents the plot of the show (BBC Merlin), while other elements are original. He's not literally a spy on the show, and he never helps the princess with her magic. Both of those are original plotlines. The near-future dystopia is unique to her story, too. She also said before she started that she didn't want to make the villains mustache-twirlingly evil, as they often were on the show. So she's going off in her own directions with some of the characterizations, and she has a lot of room to surprise her readers.
Sorry for length - I got excited