Hey everyone I made a video covering the main points for the new flag feature. All you really need to know is... Flags must be 24 bit color depth PNG format; They will be resized to 256 x 160; (So if it isn't it will be stretched or shrunk to fit.) Finally Drop them in your folder at KSP_(insert OS)/GameData/Squad/Flags "They also have to have a 24 bit colour depth. I made mine in GIMP and exported as a PNG, but it was a 32 bit PNG. Had no idea how to change it, tried messing with palettes and such, and then used another program (ACDSee, which I've used for years as an image display and quick photo-editing software) to resave it and it was automatically saved as a 24 bit file with no obvious loss of quality (bonus!). If you are using GIMP and having this problem, I'm not sure if other image editors would do the same, but you can try it. Maybe even MS Paint would do it as a quick conversion tool." - KerBlammo!
Have fun and happy capping some flags on planets.