Unfortunately there is no clear distinction between flagging and downvoting or a "thumbs down".
The idea of flagging would seem to be from reading the rollover tooltip to be used for abuse in content, such as plagiarism and spam, but because it is tied to rewards there is no way to voice disagreement simply like with a separate downvote button.
A lot of people would like to have the option of just a downvote that doesn't penalize the rewards. And the opposite as well. There are a lot of posts I would like to give a thumbs up to without using my "valuable" upvote. Also for a whale that doesn't want to give a lot of reward to a post but wants to show that they agree or like the post have to spend their time with a comment saying "Good post" because they have no other option. I think that many whales would be using a thumbs up button if there was one, not to mention all the users that are "curating" with their votes and are trying to keep them close to 100%. Votes are valuable, and so is recognition of someones post and comments.
Steemit can pay people in Steem and in "karma" and the "karma" is free and easy to implement in the Steemit.com site. All you need is a thumbs up button.