You might start by reading up on exactly what flag protocol dictates proper use of a flag should and should not be.
https://www.usa.gov/flag
http://www.usflag.org/flagetiquette.html
https://www.legion.org/flag/code
In addition to violating flag protocol, many veterans are uncomfortable with flag quilts because flags are draped over coffins of those who have given the ultimate sacrifice.
I think as long as you make a quilt with blocks, if doesn't look like a flag you're fine.