In the root civ2 folder on your computer, there should be several .gif files containing most of the graphics for the game. In the file cities.gif there you can see several flags down to the left of it. What you need to do is to replace these flags with your new flags.
First step is to backup all the .gif files (you'll need them if you screw up). Then you'll need a gif editing program that doesn't change anything in the file but the pixels you change, meaning MS Paint doesn't work, but a program like Paint Shop Pro does. Then you need to open both files in this program, select the flagpart of the image containing the new flags and copy them. Then you paste it on top pf the old flags and save the file. If everything worked out fine your cities should have new flags.
If something went wrong, I suggest you ask about it in the civ2-scenario and creation forum.
