In the discussion on hex subtraction and overflow/carry flags, the subtraction of 71 (0x71) and A9 (0xA9) yields C8. The carry flag is set because the operation involves a negative number, which is treated using 2's complement. The processor cannot distinguish between signed and unsigned operands, leading to both carry and overflow flags being set. The result of the subtraction indicates an overflow condition, as the value exceeds the range of an 8-bit 2's complement representation. This highlights the importance of understanding how negative values are processed in assembly language on the 8051 microcontroller.