The BSD man pages cover it pretty well. It's more fun & games w/ the pseudoterm. Should ^S, ^Q go to the terminal driver, or to the program using it? In the case of the shell, this means the readline lib.
you didn't want to use xon/xoff, you wanted to use rs232 hardware wires. mercifully (or sadly, perhaps) i have forgotten all about this. but then, i am old and ill.
RTS/CTS.
This is a great explanation, especially the part describing how ctrl codes are mapped to their corresponding letters. I always felt there was probably a logic to it, but the idea never fully materialized into something I thought to investigate. Learning about how to disable XON/OFF is more like a bonus.
I'm pretty sure I've never messed with those terminal settings yet I've often seen nano's "XON/XOFF ignored, mumble mumble" message (when trying to save with Ctrl+S).
TL;DR put this command in the interactive part of your shell startup scripts if you want to use interactive search (and you do):