Flags are used to mark a location on a map which is an objectives in some competitive myth gametypes (Capture the Flag, Flag Rally, King of the Hill, Last Man on the Hill, Terries). A flag can be neutral (not captured/tagged), captured, tagged or contested.
A player/team tags a flag (Flag Rally) by moving close to a flag when no other enemy units are in range to tag the flag. A team controls a flag (Capture the Flag, Terries, Last Man...) by staying close enough to the flag to tag it and keeping enemy units from 'tagging' the flag. In games of King of the Hill, Last Man on the Hill, or Terries a flag stays 'tagged' by a team until units of another team tag the flag.
When units from 2 or more teams are close enough to 'tag' a flag the flag is 'contested'.
[Thanks to Switch on the mwc12 forums for suggesting this definition. ]