They aren't just flown when the ship is in their home port. It's also at sea too. The flags have different meanings and are used for communication. For example, when the pilot boards the ship to guide it into port, they fly the "H" flag. When the ship is in port you will see a blue flag with a square white center which means it's about to sail in the next 24 hrs. Also the call letters of the ship are spelled out and you'll see a combination of letters. There are flags for weather too.
Here's a few sites to learn more about the different ones:
I think the original poster meant the flags that are flown from bow to stern in the home port representing the nationalities of all the crew members on board.
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