So there's a literal flag that signifies the presence of an admiral aboard a ship -- here is a picture of HMS Victory flying the flag of the First Sea Lord -- but the notion of "transferring a flag" is that an admiral might move from ship to ship throughout the course of their careers, or even during a battle. The term comes from the ship that an admiral takes up residence on is called their "flagship," and their flag is both the literal piece of cloth and also the presence of the admiral aboard. For example, when Nagumo Chūichi's flagship, Akagi, was damaged at Midway, he transferred his flag to the cruiser Nagara -- that means that he and his surviving staff went there to command the fleet from that ship, not just that his flag moved across. Does that make sense?