Will decals allow the bright flag? And will they be able to be moved dynamically in real time? Could you use this for flashlight/overhead lighting effects and projectors, or?

Bright flag and moving: yes; flashlight: no. Flashlights are usually generated with a shadow mapping shader.

I am not sure I get it, if you place a bright decal in front of the player and have it update with his position, would you not achieve the same effect?

or if you had a hanging light, couldn't you place a decal on the ground? I know it wouldn't cast a shadow.

Or am I mising something..

No, a bright decal in front of the player won't produce a flashlight effect. It will just look like a bright decal.