You can either use an existing image flag created by someone else, or create your own. To create your own in Photoshop, open a new document with 256 pixels width and 160 pixels height.
|Create a 256 x 160 px image|
|Now there's something you don't see every day|
E:\Program Files (x86)\Steam\steamapps\common\Kerbal Space Program\GameData\Squad\Flags
Replace "E" with whatever drive you have installed Kerbal on. If Kerbal is installed outside Steam, this path will be different. No matter where Kerbal is, the important part is \GameData\Squad\Flags. Drop the newly minted flag in there!
|UWE flags sitting with the defaults|
|Unknown Worlds flags ready to conquer some... Unknown Worlds|