Flags is simply the chosen representation on Steemit.com. More accurately, in the code of the blockchain, a flag is a downvote. If 1 user upvotes a post with enough power to give it $1, and another user downvotes the post but only has half as much power, the payout will move down to .50 cents. No single flag blocks a post from getting rewards, and you do not have to be higher powered or higher reputation than the person you are flagging.
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Thanks. I hopefully will never have to use that.