They exist
by tradition, mostly. Flags are holdovers from ancient times before people
reached the stars. In space, there really was no point to a flag. More often
than not any flag seen was painted on a hull. But only high resolution optical
sensors could see them from any real distance, and those were more interested
in threat identification through hull design than splashes of paint.
Largely, as
a means of identification, of representation to an ideal, flags were useless.
Flags only had one use, one reason why Alliance ships carried them, and carried
lots of them.
Arrayed in
Atlas’s third cargo hold, Flynn walked among the nineteen caskets all adorned
with the flag of the Alliance. Each flag would be carefully folded and passed
along to next of kin.
It was tradition.