Flags are downvotes. They remove potential payouts from the posts and return them to the rewards pool.
There are several suggested reasons for downvoting but it is really up to if you want to downvote a post. I don't downvote that often but when I do it's normally because I feel the post is committing some form of abuse or is just simply over rewarded.
I think it is good to leave a comment to state why you downvoted the post but you don't have to if you don't want to. Another thing with downvoting is that you forgone any curation rewards as well as depleting your Voting Power. This has made downvoting very unattractive to many users.