Wales has been united with England since the 13th Century. This meant Wales wasn't a separate principality (and why to this day, they share the same code of law). So when the first Union Flag was created in 1606 it was represented under the St Georges Cross.

It's to do with kingdoms. England, Scotland and Ireland were kingdoms, hence are represented in the flag of the United Kingdom. Wales was only a principality ruled by the king of England, hence not being included.