This seems like a great system, but in many years of sailing I've never encountered it actually used. For the most part is only possible to be used by large commercial vessels, but those vessels already have a dozen other redundant communication systems that are clearer and faster. Operators of small private vessels aren't likely to even know this system exists, not alone carry all of these flags, a code book, and a system for hoisting flags.
It's a relic from the age of sail. Example from a few minutes googling: https://tegfan.net/2014/09/05/the-windrush/
Trafalgar (1805) https://web.archive.org/web/20060919112358/http://www.nelson...
In one of the Aubrey&Maturin books, in order to encourage their sailors to ask the local women to dance, Aubrey decorates a ballroom with a hoist equivalent to: http://www.wightmistress.com/wightmistress.com/IHYC_Flag_Eti... , engage the enemy more closely
A blue water sailing vessel might have a yellow Q flag on board for 'quarantine', signaling for officials to come document the arrival in a foreign port.
I have only seen it on US navy vessels, I have never seen it used for communications, but they like to put up the ships id on the flags, And I always enjoy breaking out the manual and fumble my way through deciphering the flags when I see them.
Yes. Anything serious is internationally required to carry (and many smaller things would be required by local laws, or strongly advised to carry anyway) a modern digital maritime radio - the technology is called DSC, Digital Selective Calling.
Yes- and even many cheap handheld VHFs have DSC nowadays.