Why intercepted signal flags still need interpretation

Are flag signals an easy source of naval intelligence?

Only if the observer can capture the signal and knows the codebook needed to interpret it.

An observable flag hoist is separate from the information contained in its agreed code. An opponent still has to see and accurately copy the flags before any interpretation can begin. The observer then needs the relevant signal book to turn the hoist into its intended phrase or coded instruction. Flag visibility therefore makes collection possible, but it does not by itself reveal the operational meaning of a naval message.