Setting
Spain, 1944
History lesson time: the Spanish Civil War was a conflict that lasted from 1936-1939. (Yeah: the 1930s were a rough time pretty much globally.)
This conflict saw a battle—or, more accurately, a bunch of battles—between the left-leaning Republicans and the right-leaning Nationalists. But because this took place in 1930s Europe, it was massively globally significant: the Republicans were getting aid from the Soviet Union and the Nationalists were getting aid from the Nazis.
And the Nationalists officially won on April 1, 1939…exactly six months before WWII started.
Pan's Labyrinth takes place five years later. WWII has been raging for a long time, but the tide of war had turned and the end was in sight. In fact, part of the reason the (Republican) rebels are still fighting a war they had lost was that they were hoping for Allied reinforcements.
The Allies were winning the war at this point and, seeing as they were taking out fascist regimes, the Spanish rebels were hoping they would come for the Spanish Falangists.
Unfortunately, that never happened. But hey, at least they were victorious in the movie, right? Right?