When ever you see a guy with two flags waving his arms around, this is what he's doing!
Flag semaphores can only represent letters, digits and spaces, so there are no punctuation marks. It's best for passing short messages, probably in some sort of code so you could communicate something complex with only a few characters. Text speak would probably work well over flag semaphore!
As well as flags for letters, digits, and spaces, there are also a few special-purpose flags that let you send common messages like 'acknowledge', 'cancel', 'correct' and 'error' with just a single flag. But, at the moment, this converter doesn't support them yet.
For more information about flag semaphores, see the wikipedia article.