Out of the Park Developments Online Manuals
 
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Editing Nation Flags
Nation flags are used in the game whenever a player's nationality is listed. They're not terribly important, but it adds a nice flavor if your fictional nations have unique flags. Nation flag graphics must be in .PNG format, 20 pixels wide by 12 pixels high. Nation flags must be named according to the nations.txt country abbreviation described in Editing Nations. For example, 'usa.png.'

Nation flags are stored in the datadatabasenation_flags directory in your OOTP installation. Nation flags are 'global' in OOTP. That is, you cannot have different nation flags for the same nation in different game universes. As soon as you modify a nation flag, that flag will appear in all your game universes the next time they are loaded