The original purpose of flags was to identify the nationality (or faction) of a given group of soldiers on a battlefield. Subsequently it has been used as a national symbol.
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Such a flag is called a national flag.
Yes it did.
Each color of the U.S. flag has a specific representation. Blue was used to represent freedom and perseverance, white was used to represent innocence and purity, and red was used to represent blood and war.
Assuming you are referring to the US flag as there is no such thing as the American flag. The colors in the flag have no official meaning. Many people have come up with meanings over the past 200+ years, but, unlike several other countries (such as France and Mexico), the US does not officially define the meaning behind the colors used in its flag.
Capturing the enemy's flag was long linked with morale, to the point that men would die to prevent the flag being even in danger of capture. Military trainers simply used this idea and practised it as an exercise.