Still it isn't an issue if your game doesn't lag. If it's really bothering you, file a bug report. I'm sure Ashley can give you a much better explanation than me.
time is just the game clock, it's advanced by dt. Dt is affected by the time between frames and timescale. Now when the time between frames gets too big c2 will limit it, which is what you have a problem with. This was done on purpose to slow down instead of letting objects move too far per frame and miss collisions.
Consider an object with a speed of 600.
At 60fps it will move 10 pixels per frame.
At 10fps it would move at 60 pixels per frame.
So if walls were only 32 pixels wide, the object could move right past it.
Limiting dt helps with this.