The flags are not explained. Are they personal flags? Flags of the specific alien races? Flags of the districts that they come from? Or is their some sort of political religious reason for the flags? Only George Lucas knows, email me if you got his number.
In Episode I: the Phantom Menace flags take center stage just before the beginning of the Pod Race with young 'Darth Vader', little Annie - Anakin Skywalker. An unfinished C3P-0 is the flag bearer for the occasion. The colours for Annie are blue and white and the design is rather geometrically complex.
C3P-0 Holding the flag of Annie's blue and white flag on the left just before the 'hairless' camel farts in Jar Jar Binks' face. Many Star Wars fans were delighted to see this happen.
Another Birds Eye View of the Flags
Interesting to note in Star Wars, the desert planet of Tatooine has two suns, while the desert planet Arrakis of Dune has two moons. Luke soberly wonders about his destiny while looking at the iconic binary sun sunset of Tatooine, while Paul Atreides vision of the two full moons of Arrakis causes him to trip his brains out with a flashback after eating the psychoactive mind bending spice.
You can infer that Herbert may have did a lot of drugs while Lucas played it safe.
Iconic image of a binary sun set on desert planet of Tatooine
Rough Rendition of Annie's Flag
Watch the Star War Flags Video Here
Fun Links!
Link to Lucas Arts
www.lucasarts.com/
Skywalker Ranch
www.lucasarts.com/
George Lucas Wikipedia
en.wikipedia.org/wiki/George_lucas
George Lucas Unencyclopedia
uncyclopedia.wikia.com/wiki/George_Lucas
Fun Links!
Link to Lucas Arts
www.lucasarts.com/
Skywalker Ranch
www.lucasarts.com/
George Lucas Wikipedia
en.wikipedia.org/wiki/George_lucas
George Lucas Unencyclopedia
uncyclopedia.wikia.com/wiki/George_Lucas