So does it work like if you pick Breton Orc Redguard, you always fight for Daggerfall in PvP?

Also which does Imperial fight for?

If you pre-order you can play any race in any faction.

Oh, But that is how it works? the flag you pick is always the one you fight for and can't ever switch?

There may be a real cash service you can buy in the future that allows you to change factions, but other than that, short of making a new character in a new faction, yes that's how it works. You pick a faction, you're stuck with that faction

Do the factions have any different bonus's for your character? Or is just a flag beside your name and which faction you fight for in PvP

As far as I've seen, it's just the faction you fight for. Maybe there are benefits I haven't seen yet though.