A website with all the supplies to make an outdoor flag.
http://www.flagguys.com/flagmake.html
In doing some reading, it would seem that nylon or polyester is a material that will last out in the weather. Some people do flags from burlap and other fabrics. They don't seem to have a lot of durability but the material is easily available and is inexpensive. Good quality nylon can be pricey.
JoAnn Fabrics has this nylon
http://www.joann.com/sport-nylon/prd13084.html
And how to make a flag from a placemat
http://www.prettyhandygirl.com/summe...tore-placemat/