The flag for US Internal Waters is based upon a fusion of the red, white, and blue striped flags that were common during the early part of the revolutionary period, mixed with the star field pattern from the US flag from the War of 1812. However it only has 13 stars that alternate angles in a wavy pattern. It was during this 'Second War of Independence' with the UK that the US Navy stood its ground. In honor of that time frame and rise of the US Navy to blue water navy status, the wavy stars of the War of 1812 - Star Spangled Banner flag are brought back into use.
Additionally this flag is for Americans who were born in US internal waters-beyond the three nautical mile claim of the 50 states. Basically a flag for persons born in sovereign waters of the USA 3 to 12 nautical miles out to sea. Imagine if you were born on a cruise ship 8 nautical miles off the coast of South Carolina. You would be born in recognized US federal maritime territory, just beyond South Carolina's maritime borders. However if you were born 2 nautical miles out to sea from the Charleston, you would be officially born in the state of South Carolina. Although a rare event, persons born in US internal waters within this special 3 to 12 nautical miles "out to sea" have a right to fly this flag.
This can easily happen if a person is on a cruise ship, ferry, or yacht and their mother just happens to give birth at sea. The question is, what if the person does not have parents who are US citizens? Oddly they are US citizens not because they were born on US soil but rather because they were born in US territory at sea, making them True American Blue Blooded Salty Dogs.