I think it's a great Idea about signal flags!
Seems to be the best method of basic communication, especially for people who don't speak the same language. This is going to have to be dealt with eventually, because when the game does release (and especially if it becomes popular- like I think it will) then there are going to be people who don't speak English playing. There are already many people playing who only speak English as a second language; RamJB being a notable example. We are going to need a simple and easy way to talk to each other.
Maybe they could work like the button press comms in War Thunder or WoT... perhaps something like this:
You want to send the Signal : "Turn left, and Attack"
You hit a button which brings up a small menu, just like loading different ammo types now. This menu can be as simple or complex as wanted/needed. It could be as simple as having 5-6 predefined commands (such as; Help, Attack my target, Tack around, Form up, etc). To being a full signal system, allowing players to pick flags, and send custom messages as they like. (that would be realistic and cool, but I'm not sure how useful it would be )
You Pick the Signal that you like and send it. Here is another splitting point between realism, and game-ness. Once a player sends a signal, it could just pop up on their screen- ala WoT. Or... When you send a signal, the other ships on your team get a prompt; something like "Signal from the Flag Sir" or "Ship Signaling sir!" and they have to actually look at your ship in their spyglass, and look at the flags your flying. Then the message you've sent can pop up as a subtitle, or other text on the screen; since we don't wan't to force players to memorize the flags like real sailors.
Just my thoughts on what might be cool, or useful.