10.7: Editing Mail.app flags
Apple's Mail flags descriptive text can be edited.
If Red, Orange or Yellow do not reflect your flags usage you can change it. Once a message has been flagged, say, in yellow, you can click on the word 'Yellow' after opening the 'Flagged' folder in the Mailboxes list on the left. You can now edit the text. [crarko adds: It looks like the Flagged folders are basically Smart Folders, and you can rename them however you like.]
Source: http://feeds.macosxhints.com/click.phdo?i=f6a1eafc75853ae45edad73b353778a2