'Flag' is a generic term usually for a specific bit--though sometimes for an entire byte, or even a variable--whose value indicates something specific.

It could be that a process in taking place that needs to finish before anything else can be done, (like reading from a disk drive, for example), or indicating things such as that the last operation resulted in a 'carry,' such as when you add 2 to a byte that already equals 255. In that case the byte would equal 1, and the carry flag would be True, (=1).