>a racist flag
When I look at the Confederate flag, it represents something completely different to me. It's the flag that my great-great-great-great grandfather fought for, not because he was a racist, but because he was 12 years old (he got discharged honorably for somehow getting enlisted below the minimum age) and wanted to protect his friends and neighbors.
The popular misconception was that anyone flying the Confederate flag during the war did so out of seething hatred towards anyone not white. The even more popular misconception is that by extension, anyone flying that same flag today does so out of the same reason.
For a lot of folks, it's just representative (if perhaps misguidedly so) of a lot of things that define "typical southern culture": redneck (used down here not always as a pejorative but as a lifestyle shorthand) "simplicity", blunt honesty when needed ("mouth of the south") and hospitality when not, and the sort of "God and country" stuff that you'd expect to find in a Keith Urban track. It's like waving a Texas flag, except nobody's tried to tie the Texan flag to the racism that was prevalent everywhere in the US during the Civil War (let's not forget that Martin Luther King Jr. didn't hang out with Abe Lincoln north of the Mason-Dixon line; he worked with Lyndon Johnson much later from Atlanta and Selma.)
So I think it's cultural blindness to simply treat the Confederate flag as nothing but intrinsically racist or even as equivalent with Nazi symbolism (or to treat it as worse; Amazon still sells Nazi paraphernalia, but has discontinued Confederate flags).
But I also think it's cultural blindness to treat it as having no negative connotations. However misinformed the reasons, the public views flying a Confederate flag as assenting to what they believe it stood for: racism or hate. So whether or not they're right about what it stood for, it communicates to them that you agree with what they think it stood for.
In terms of my own worldview, I find 1 Corinthians 8:4-13 [1] to be pretty applicable here (where the issue at hand was "is it okay to eat food that had been used in pagan worship ceremonies?")
The idea being: yes, sure, I know better, so it's okay for me. But if I eat that food (or in this case, wave that flag) in front of someone who thinks it's very wrong, I am in their eyes giving approval to something they see as wrong, causing them an issue of conscience. If they go along with me, they are knowingly doing what they believe is wrong. It is then a conscious offense for them, because they have a different understanding of the issue than I do. And I either force them to compromise their conscience to justify my behavior in their minds, or else I cause them to see me and my moral framework in a much worse light.
So then, if I have a Confederate flag in my house, whatever, I understand the significance it has to me. But if I fly it out in my yard, I am in my neighbors' minds backing whatever they think that stands for. So any other cause I support or view I hold is immediately suspect to them now. I do damage to more important issues because of my lack of awareness on a less important one.
[1] http://www.esvbible.org/1Corinthians8/