Aris is correct. Here's another post from the same forum. A very useful forum for WW1 aviation info IMHO.
EDIT: In terms of game mechanics, flares are just there for immersion and role playing but do nothing else. You must use key combos to issue commands to your squad.
QUOTE:So far as the Germans, the following is taken directly from the Handbook Of German Military And Naval Aviation (War) 1914-1918, issued by the British Air Ministry (material prepared in October 1918 and published in January 1919).
"Light signals fired from a Very light pistol are used by airmen for signalling to the ground, for establishing their nationality or identity, for calling for particular kinds of artillery fire, for ranging, and for intercommunications when acting in formation.
The signals consist of balls of various colours (white, red, green and yellow), stars, and rain (Perlen), either used separately or in conjunction. Identity signals are prescribed and varied from time to time by the General Officer Commanding the Air Forces, in agreement with the Chief of the Admiralty Staff of the Navy; orders respecting light signals are also laid down by Army Headquarters. In the 3rd Bombengeschwader colours are said to have been given to each flight for purposes of communicating with aerodromes and for asking for bearings from the ground when the observer had lost his way.
The following are examples of some light signals used in 1918:
With Infantry --
One red light := "Spread out signals"
One red and one white light := "Understood"
One green light := Used before dropping a message at Battalion H.Q.
With Artillery --
Two yellow lights with double stars := "Destructive fire"
Two white lights with white rain (Perlen) := "Shorten range"
One white star := Request for a round
One red light := "Short"
One green and one red light := "Over, and to left"
Night Flying --
One white star := Recognition signal
One white star with one green and one red light := Asking for bearings
One white star and one red light := Distress signal
Green lights fired by aeroplanes flying in formation have generally been used to call attention to some new movement (turning, etc.).
Very lights are also frequently fired into the ground by front-line troops to mark their position. These are used either instead of, or in conjunction with ground cloths.
Guards on the Belgian-Dutch frontier fire Very lights bursting into stars whenever German machines approach in order to prevent them flying over Holland. Anti-aircraft batteries and signalling guns, when in doubt as to the nationality of a machine, also fire these white lights and expect the signal to be returned by the machine if it is German.
The Germans also use signalling anti-aircraft sections, which consist of indication posts situated in the direction of the principal objectives, and serving to check the direction pointed out by the compass. At these posts are placed batteries of small calibre guns, which fire a certain number of light-signals to a considerable height. A signalling gun at Munte, near Gontrode, is reported to have fired a signal to a height of 4,800 ft. in Morse code ( • • •) at intervals of three minutes. Signalling guns have fixed locations."