I have a tape of a 80+ year old Irish friend singing this song, and he explains beforehand what that bit is about.
YOu are right about how it pokes fun at O'Connell's support of the Brits, but he also says that there was some common misunderstanding of the day amongst the poor folk about what the newly invented steam engine was supposed to do. (Possibly because someone said it would do the work of many men; something like that). Let me find Paddy's tape and I'll post what he says. I can also check his words agianst yours.
Blessings,
Barbara