I am making a design wall using a frame and flannel. Does the flannel have to hang vertically with the selvage on the left and right or can I stretch it vertically on the frame.

If you are stretching it snugly, I would not think it should matter.

I just have a flannel sheet that is sewn into an envelope & hung horizontally & it works great (it has a styro board inside) but it works great, so should work great for you no matter which way you decide to hang it.

My dh made me a wonderful frame, we pulled the flannel and batting very tight and stapled it onto the frame. but I found out that there was too much give. This caused the pieces to jiggle just enough to fall off after a while. So now I just stapled it to the wall with a regular stapler without the batting and it works soooo much better, no more jiggle and I can press it firmly to the wall and it stays put.

I stapled mine to the trim around the top and it has been hanging there now for about 5 years and works great! LOL