Flags on the units?

I have to admit that I do not know. I haven't made any unit models so I don't know how they implement the flag graphics to those units. Maybe try asking the same question on unit graphics forum section?
 
Most likely the flag is included in the unit texture, if you can give unit names where you've noticed this, I can check the textures from them. All I know is that team (civ) color can be set to unit model somehow.
 
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