Flagging does seem to primarily be a tool for moderation. But for comments, at least, I've mostly not observed flagging being used to hide things that shouldn't be; if anything, I think flagging is underused on comments.

(It's still regularly abused on stories as a downvote, perhaps in part because stories don't have downvotes. HN sometimes "rescues" stories that get over-flagged, but it's still a problem.)