The most common and most likely answer to this crossword clue is the 5 letter word PAVED
P
A
V
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D
Buddy explains!

The straight part
We know that "with flags" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case with flags = paved.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
What does PAVED mean?
PAVED verb- To cover something with paving slabs.
- To cover with stone, concrete, blacktop or other solid covering, especially to aid travel.
- To pave the way for; to make easy and smooth.
- Covered in pavement; having a hard surface, as of concrete or asphalt.
- Laid out or made, as intentions, desires, plans, etc.