It definitely distracts the squid's attention, the tentacle it holds the villager in too far from Inigo to bother attempting to use their captured human as a sledgehammer to bonk the hero with, and its interest in Tidus completely gone. Multitasking isn't an easy job, even with multiple arms to theoretically do it with, and there's little to no visibility from the waters the main body of the squid hides in.

Tidus doesn't delay. He can hear the motions of the limbs, knows that Inigo is a part of it, but he can't spare the time to look as he's getting up, locating where the villager and that particular limb is. Paused for the time being, but who knows how long. So he readies his blade, angled and with a few steps taken back--so he can jump higher than a normal human dumb stupid fantasy characters, slashing into the meat of the tentacle from one side to the other, and now the end of the tentacle has no choice to let go, detached from the rest of the arm.

But it also means the villager is falling, and so is Tidus; grabbing them last second for an awkward roll that loses Tidus his sword in the sand. All arms of the oversized sea monster go up, writhing together in the pain.

Which is either a good or bad thing, distracting the creature temporarily to give the trio a second to breathe. But also, two of those three may soon be the targets for some payback soon.

Tidus stop falling so much.......