Oh I see what you're saying.
That's a sociological *theory* that applies to many (not all) groups of people.
The way it works is something like...
You have a large group of people, ruled by 1 person/family.
Each person (well, noble-families, anyway) has their own CREST which goes on... everything, usually... Their *shields* their clothing, their dishes Showoffs.. anyway... They also, in SOME societies, have to fly the CREST/banner of their ruler... especially in times of war. It shows that they support the person/family who is above them.
Remember, this is only *some* societies.
What happens is, as the hierarchy collapses, fewer people are "above" you, less importance is placed on individual crests, and the display on banners and flags is more often simply the crest (or a *simplified* crest) of that ruling body.
It's a way of unifying a group of people that was once divided.
The crest could be simplified over time, or eventually, eliminated completely. Or it could take on characteristics of other ruling bodies that come before or after.
When a *type* of government (be it king, council, president, whatever) is overthrown, often the first thing done is to replace the symbol of their power - that's the crest- on as many things as possible... including the flag.
The USA, for example, took and decided on its' own flag with 13 stars and 13 stripes, to represent 13 colonies. More stars were added as it grew.
But once a large *country* is established, the divisions within that country usually fall back on developing its' own symbol. So each state or province, duchy or earldom, might have its' own flag. Then even smaller bodies of governance want in on the action, and develop their own symbol.
And since the "states" group incorporates the nation's symbol (typically) into their own, it's usually more detailed. And the counties incorporate the state's symbol into their flag, which is now even more detailed. And the cities incorporate the counties.... and so on.
So in that type of society, you can get pretty intricate flags as you get to the city/town level.
In some societies, you can't have your own flag... has to be the nation's flag.
In some societies, (especially militaristic societies) emphasis is still placed on simplicity and contrast... to make your BANNERS (not always the same as flags, but sometimes) more visible.
Banners are often simplified versions of the crest/symbol of whoever is in charge.
"Shield" in the context of flags/crests is simply the *shape* of what the crest or symbol is placed on. It might be a different shape... an oval, or circle, or a diamond... it depends on what society you're in and *who/what* the flag is meant to represent.
Trivia: In many societies, women couldn't place their crests/symbols on a shield... they placed it on a lozenge with a different shape - often round. Cities, countries and the like are often referred to as female, so in the USA they typically (though the reason is lost to most) use a round shape to illustrate their SEAL which is then placed on the flag
Anyway, yes, you're right, by the time you get to a more advanced society, most flags have been combined/simplified, but not all. There's no hard and fast rule for it, because it all depends on the sociology of the country/city/whatever, and its' history.
We think of flags, usually, with bright, contrasting colors, because originally, the flags, as banners, had to display the crest of certain leaders, and they had to be able to be seen and recognized far across battlefields.
But not all societies started that way, and even those who did, often had to find ways of distinguishing, say, the first son (a general) and second son (a general) of the same family... and so flags/banners/crests might get more complicated with time, rather than less.
It all gets very confusing if you try to make any sense out of it at all, because, as I saaid, each society is different.
I hope that didn't confuse you even more, I'm horrible at explaining things! >.<