Lightroom has several different ways to tag images including flags, star ratings and color labels. Both the star ratings and color labels are global settings. If for example, you apply a star rating to an image in a folder, that star will travel with the image if you add the image to a Collection or Publish Services. The Flag tag (or attribute), on the other hand is specific to the folder/collection/publish services in which it is assigned. This “localized flagging” feature was designed so that you could flag images within a folder/collection/publish services independently of the other image’s other locations and so that you could then use that flag to further filter the images – to play for example, only a subcollection of images in a slideshow at any given time. The feature can, however cause unexpected results if you didn’t know that was the way that flags were designed to work.

Interesting. I thought both were only local. I don’t generally flag or star my images, I only assign colors.
Hmm, I didn’t realize that flags worked in this manner, but this actually suits very well the way that I’ve used them in my workflow.
I didn’t realize this…question I have now:
I have flagged several images while they are not in a collection (while viewing “all photos”). I have now placed those images into a collection.
How do I flag the images that are now in the collection (and are unflagged) – to be flagged again? or do i have to re-flag them all manually?
Is there any way to “copy” the flag settings for images into the collection?
I would select the photos in the collection and tap the “P” key to flag them there. There is not a preference that I know of that will “carry” a flag from a folder to a collection.
Suggestion:
1] from a set of images with MIXED flags, colour the Picks
2] make your Collection from the images in [1]
3] use a Filter to select the coloured images in [2]
4] apply the Pick flag to all of the images in [3]
5] remove the colour from the images in [4]
OK, now that this feature has been ruined in LR4, is there any way to bring back the old behavior?