If the flag was used, was this flag only used by the Australian Imperial Force or was it used as a national flag before being changed to the more familiar blue?
Yes, that flag is the Red Ensign, and it was used by the AIF in WWI as the national flag for Australia. It was adopted in 1901 after a national competition, but never had any legal status and was used equally with the British Union Jack.
This famous painting shows the opening of the Old Parliament building in Canberra in 1927, and as you can see, all of the flags here are Red Ensigns and Union Jacks.
Our modern national flag, the Blue Ensign, was originally restricted to governmental use - it was rarely used until Menzies made it our national flag by an act of parliament in 1954.
Here's a link to Ausflag, the main website dedicated to discussion on the creation on a new national flag - it also does a good job explaining the history on all sorts of Aussie flags, including non-governmental one-offs like the Eureka Flag. There are also plenty of governmental websites that explain the history of most Australian flags and their symbolism.
