I'd start with the base colors themselves, and lighten them appropriately to depict the fading that occurs with a color exposed to sun, wind, and rain. Then use washes and pigments as appropriate.
The others will have better advice, I'm sure, and better details about fading specific colors (dyes) used in producing a flag. That is, certain blue dyes will tend to fade to specific lighter shades, same with red, whites will yellow or perhaps go to very light gray shades, and so on.
Prost!
Brad