So I'm returning back to Skyrim after having a break for four months, did a fresh install and a fresh loadout of mods. I decide that I want to create some NPC's of my own whenever I feel like being creative, and give them some dialogue background. However, whenver I try to compile, I get that same unknown flag error like I have before. I did the steps by locating the scripts.rar, cutting it, and moving it into Scripts/Source, and compile it into source, but the error still shows up. Is there now a new extra step behind all this?

Sounds like the compiler cannot locate a file called TESV_Papyrus_Flags.flg in the input folders. Have you checked to make sure that the file is in \Skyrim\Data\Scripts\Source?

OK, complete overhaul of this post as I didn't read OP properly at first... (I was first suggesting to decompress scripts.rar ... )

Are you running the CK from Mod Organizer ?

With what are you trying to compile anyway ? CK or third-party ? If third party, have you properly modified ScriptCompile.bat ? (double check this!)