Instructions
Open "EU3's" installation folder. This is whatever location you chose during installation.
Double-click the "gfx" folder, followed by "Flags."
Open the flag graphic in your desired program. You must have a program that opens TGA files, such as GIMP, Photoshop or PaintShop Pro.
Edit the graphic as desired. The sky is the limit here, as long as you do not change the dimensions or the file type. For example, click the paint can followed by a section on the flag to change its color. Additionally, you can click the paint tool and drag your mouse on the flag to paint lines. Finally, you can click the eraser tool and drag your mouse on the flag to remove the design. While the exact instructions will vary depending on your program, many programs have the same basic tools.
Press the "Ctrl" and "S" keys simultaneously to save the flag, automatically enabling it for use in the game.