I wouldn't say that it's a poorly understood phenomenon.
The flag flutters because there's a time-varying, asymmetric load on the sides.
Now, what causes the load, I would agree that it's a relatively complicated aeroelastic issue. Is it solvable? Absolutely. I think it would be interesting to see, at the very least, a 2D analysis of an infinitely thin surface of low stiffness in streamwise flow.
Anyone got time to run this?