If you feel that the comment you're looking at is harmful in some way to the site or anyone that is looking at it, then flag. If more people feel the same way, it will get looked at by an admin.
(It's much simpler to just simply report the comment to a mod/admin)
No Dan, it does work. Though the person actually has to see the page, to find it. It doesn't work like a notifications system where an admin receives an alert. It just bolds/highlights the comment/post being flagged. Well, it is just being flagged. If you aren't there you can't see basically.