The origins of the different sorts of ensigns are Naval. There were Admirals of the White, of the Blue and of the Red so that various squadrons could easily be distinguished.
Virtually all flag etiquette stems from the fact that flags were once the only way to communicate beyond earshot.
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As for why we should bother with all that now, the answer is we don't have to. It's useful to wear a national ensign for.
Obvious reasons, and if abroad it's essential. If abroad you must also wear a courtesy ensign as the top flag at the starboard crosstrees – that allows you to fly your national flag in another country.
Under international law.
You are obliged to show your colours whenever you enter a harbour or pass a warship.
In some countries if you don't weara courtesy flag, you must strike your ensign. That is sometimes better if you don't have a proper courtesy flag. Once, in Portugal, I saw a British yacht wearing a courtesy flag made from the green part of a Scotch Brite sewn to a red plastic sheet!
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