The first introduction of the flag is in chapter 3, when the flag is described. The flag is run up the flag pole every Sunday. Snowball is the one that created the flag, and emphasizes its use.
First came the hoisting of the flag. Snowball had found in the harness-room an old green tablecloth of Mrs. Jones’s and had painted on it a hoof and a horn in white. ... The flag was green, Snowball explained, to represent the green fields of England, while the hoof and horn signified the future Republic of the Animals which would arise when the human race had been finally overthrown. (chapter 3)
The flag is waved in chapter 4. As with the formation of many new countries, the flag serves an important ceremonial purpose on Animal Farm. Flags promote camaraderie, and give everyone something to rally around. The same purpose is achieved by the Beasts of England song.
The flag was run up and ‘Beasts of England’ was sung a number of times, then the sheep who had been killed was given a solemn funeral, a hawthorn bush being planted on her grave. At the graveside Snowball made a little speech, emphasising the need for all animals to be ready to die for Animal Farm if need be. (chapter 4)
As this quote demonstrates, the flag and funeral are being used for propaganda purposes. All flags are propaganda, including the choice of symbols and colors and how they are used. The Animal Farm flag is no exception.