Jack - the flag has no meaning. If you look at bc's link you will see that it is the position the flag (or both flags in conjunction) is held that denotes the letter of the alphabet, or an action, or a number.
The colour of the flag is so that it can easily be seen against either a dark or a light background depending on the location of the sender and the observer.
Flags stand out much better than waving arms, hence their size, 2 or 3 feet square I think.
It is for sending messages, has been so for hundreds of years (hundreds? maybe a bit less), well before wireless, email or mobile phones. It is a bit like Morse, just with flags instead of a buzzer.
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