Its honestly overused to simplify a complex action, decision, character, development and dumbs down the person assigning it cos they cant comprehend that people (even greatly written characters) are black and white (or green or red for this matter)
Are not* black and white
great point! it oversimplifies things to talk about characters like that! if you've ever seen people bring up "yellow flag", I feel like that's an attempt by people using flags that way at reintroducing the nuance that got lost by reducing characters to red or green.
after thinking about it some more, a point I forgot to mention is that some traits or qualities can be green flags/positive in some contexts or situations, while red/negative in others. is someone ambitious, or a social climbing user? is a person pragmatic, or cynical? are they easygoing, or lacking drive? even the negative interpretations of those traits could potentially work in a relationship with someone on the same wavelength or just drive conflict in a story in a way that's not merely abusive.
a flag is a communication tool. a basic and common function is signalling if a path is clear (green) or obstructed/hazardous (red).
imo, many people are using "flags" weirdly because it makes more sense to apply it to behaviors and attitudes rather than to a person or character as whole. that's how I saw the concept used, initially, anyways. so this is in terms of attitudes, behaviors and actions
green flags: emotional intelligence (being able to know/identify one's own feelings and recognize them in others), respect for boundaries, willingness to share, communication skills, anything that facilitates a functional relationship
red flags: being controlling, ignoring and violating boundaries, undermining the autonomy of others, superiority complexes, being invested in hierarchies, self-sacrificing or guilt-tripping, anything that leads to an abusive relationship
stuff like that
you can have conflict in a story, even a romantic one, without resorting to abuse and so-called red/black flag characters. it's as simple as characters having different needs and wants in life, or pressure from external forces. but that kind of thing takes actual writing skills and capacity for complex reasoning.
(there's a question about flags that I'm responding to, but it looks like I'm blocked by the op of that)