1. ) Rules of heraldry are fun and i tend to use them when designing coats of arms and frags in pseudo-European fantasy settings.

2.) The rules do not state that flags have to be simple. Quite a lot of historic flags clearly are not.

3.) Most of the rules do have purpose. The bordering color rules tend to force contrasts. The rules about allowed colors make sure that flags and coats of arms are still recognizable when they bleach out in the sun or when you don't have the exact same kind of pigment ready. The rules on figures and position make sure that you can recognice a coat of arms based on a description or that you could draw one from description alone without needing an original as template.

Yes, later and especcially for sea travel the simple flags and tricolors really became popular but i rarely use them as i rarely play in appropriate periods. However simply showing literally the "colors" instead of the proper ccomplete complicated design is still common as a means of identification. There is a reason why colors became a shorthand for flags.