I've had a Heller Reale in the attic awaiting my attention for several years now, and I have to confess one of the big reasons I haven't started is that I haven't figured out a solution to the problem of the flags. I agree that the paper on which the ones in the kit are printed is just too heavy - particularly when it's folded over double. I've thought about simply making copies with my printer (which does pretty well in such work) on a high-quality, lighter paper (drafting vellum, maybe). That probably would be an improvement, and with another set of flags might work fine. But these in particular have lots of gold on them - and there's no way the printer can reproduce the gold ink credibly. And I'm not at all sure I could paint all those gold designs with acceptable consistency.
Years ago Model Shipwright magazine ran a series, by a fine modeler named P. Heriz-Smith, on building a Reale from scratch. (I think that series may have been partially responsible for that vessel type's popularity as a model subject in subsequent years.) He painstakingly painted all the fleurs de lis on dyed silk, and in the magazine photos the results looked pretty impressive. Just a few years later I went to the Science Museum in London and saw the model itself. The red dye had faded to a pale, watery, blotchy pink, pretty thoroughly damaging the overall appearance of the model. There's a lesson to be learned there.
In wrestling with a problem like this it's useful to start out by considering what the real thing looks like, and how it's made. Big flags in the sailing ship era (and more recently) frequently were made of extremely open-woven fabric, like very coarse gauze. (The reason isn't hard to figure out. Some of those old flags were as big as sails; if they'd filled with wind they would have been unmanageable, and if they got messed up with the rigging they could conceivably mess up the ship's navigation. Or the wind would have torn them to pieces.) The old master marine painters often made their flags almost transparent. Here's a well-known example: http://www.nmm.ac.uk/collections/explore/object.cfm?ID=BHC3582 .
Come to think of it, maybe that faded pink of Mr. Heriz-Smith's flags was actually more authentic than the original bright red.
The museum where I used to work had a blue ensign that had belonged to the R.M.S. Queen Elizabeth. By the time I got there the mice had eaten it (that was a considerable source of embarrassment to the staff), but I looked at some closeup photos of it. The weave of the cloth was such that the openings between the strands appeared to be almost an inch across.
A typical flag is made up of one or several large pieces of fabric, depending on the design. Large areas, such as the stripes and the blue field on an American flag, are made of individual pieces, stitched together. Relatively small devices, such as the stars on the American flag, are made separately and sewn on, or are embroidered directly onto the fabric. In the old days, really intricate devices sometimes were painted. (Lots of surviving American Civil War regimental flags have painted lettering and images on them.)
Though most people may not be conscious of the fact, how a flag looks to the eye depends heavily on where the light source is. If the light is behind the flag, the big pieces of fabric are likely to appear translucent (i.e., pale) except at their edges (where they're sewn together and the thickness of the fabric is doubled), and the smaller devices will appear in silhouette. Take a look at the modern American flag that's shown in the first and last scenes of the movie "Saving Private Ryan." The sun is behind it. The white stripes are white, the red stripes are a sort of pale maroon, the blue field is a dull, somewhat pale blue, and the stars are black.
Reproducing all this subtlety in model form is quite a challenge. I long ago gave up trying to find a fabric with a fine enough weave (except for extremely large-scale work). My personal preference is fine paper - even tissue paper, of the sort sold for covering flying model aircraft - for flags, painted with thinned watercolor. (Donald McNarry, I believe, uses old-fashioned cigarette paper. I haven't tried that.) I start by drawing the design on normal drafting paper (simply because I have lots of it around), which I then cover with glossy Scotch tape. I tape the tissue (by the edges) over the pattern, then "trace" the design with a fine brush and watercolor. The Scotch tape keeps the paint from sticking the tissue to the pattern. When the paint's dry I cut out the flag, flip it over, and paint the other side. (Sometimes enough paint has soaked through from the first side that painting the reverse isn't necessary.) The result is a flag that's at least somewhat translucent.
One aspect of model flags that deserves attention is the way they're shaped. It's surprisingly tricky to fold and crease them in a way that's realistic. The first decision to be made is whether you want them to look like they're drooping naturally or blowing an a breeze. (If the model has sails, you made the decision when you decided how to handle them. I do get amused when I see a model with "billowing" sails and drooping flags.) My vote, generally, is for drooping flags. My willing suspension of disbelief gets stretched beyond the breaking point when I'm asked to believe a wind is blowing inside a glass case - unless, of course, the model is placed in a diorama and the sails are set.
Some years ago I got hired to do a series of ship drawings for the U.S. Coast Guard Historian's Office, and I wanted to show the flags on the ships blowing in the wind (so the designs of them would be visible). My efforts to sketch wind-blown flags out of my head were hopeless. So I picked a breezy, sunny day and took my camera to the plaza in front of the university library, where a nice, big American flag was flapping from a tall flagpole. In half an hour (during which quite a few people clearly suspected I was out of my mind) I got about a hundred stop-action shots showing what actually happens to a flag when the wind hits it. Some of them were rather surprising; I was moved to come back on a calm day and shoot the flag when it was drooping. Whenever I'm working on a model's flags I get out those photos.
I don't pretend to have an ideal solution for any of these problems; to my eye the flags I've made so far are, at best, no better than satisfactory. I do think, though, that the problem is worth a good deal of effort. Flags are usually among the last things that get a modeler's attention, and I suspect many modelers tend to rush the flag-making exercise in their desire to finish up and go onto another project. But flags really deserve attention. They'll certainly get attention from anybody looking at the finished model.