This image is using the wrong flag in the background, the quote however is correct. The battle flag was never an official Confederate Flag, and it’s usage has varied over the years from representing the Confederate Army, to a symbol of Southern Pride, to a symbol used as a declaration of hate and segregation, depending on who carried it.
Growing up in the South I was always around the “Confederate Flag” which we also knew as the Battle Flag or Rebel Flag. It was never the official Confederate Flag though, so how and when did it become known as such?
When the Southern States seceded from the Union starting in late 1860, they formed a Confederate Congress, similar to the Union’s congress. In Feb 1861 the Confederate Congress created a “Committee on the Flag and Seal.” which was chaired by William Porcher Miles, to design a flag and seal of the Confederate States of America. William T. Thompson was not the “creator” of the Confederate battle flag, but of the Stainless Banner, the second Official Confederate flag, as discussed below.
The Confederate Battle Flag
The “Confederate Battle Flag” was originally designed by William Porcher Miles, not William T. Thompson (we’ll get to him later though). Miles designed the flag with the intention of it being the Official Confederate Flag, but the Committee decided the on the flag now known as the Stars and Bars .
Miles was the mayor of Charleston in 1855 and served in the United States House of Representatives from 1857 until South Carolina seceded in December 1860 thought slavery was a “Divine institution” and that, “Men are created neither Free nor Equal.” He was a Fire Eater, a group of extreme secessionists who not only supported slavery but wished to resume the slave trade with Africa.
He was an ardent States’ Rights advocate, supporter of slavery and with Yancey an advocate of slave-trade, and Southern secessionist, He was the mayor of Charleston in 1855 and served in the United States House of Representatives from 1857 until South Carolina seceded in December 1860. In January 1859 he spoke in support of fellow fire-eater William Lowndes Yancey in advocating the repeal of federal laws banning the African slave trade. Miles felt that the regulation of the trade should be a state function and that the national ban was an insult to southern honor. Miles rejected the political legitimacy of abolitionists and free-soilers and responded to any attempts to restrict slavery with a call for secession. 
This flag was originally in the design of the St George’s Cross, Miles received a variety of feedback on this design, including a critique from Charles Moise, a self-described “Southerner of Jewish persuasion.” Moise liked the design, but asked that “the symbol of a particular religion not be made the symbol of the nation.” Taking this into account, Miles changed his flag, removing the palmetto and crescent, and substituting a heraldic saltire (“X”) for the upright one.
Stars and Bars (First Official Confederate Flag)
The Stars and Bars was chosen to to be the first official Confederate Flag. It was designed by Nicola Marschall who was a German American artist credited with designing both the first flag of the Confederacy and the grey Confederate army uniform. The Uniforms design was influenced by the mid 1800s uniforms of the Austrian and French armies.
He was born into a wealthy Prussian family of tobacco merchants in 1829. As a budding artist he decided to come to America. In 1849 he emigrated to America and first lived in New Orleans and then moved to Mobile, Alabama. He then relocated to Marion, Alabama in 1851. He opened a portrait studio and taught art at the Marion Female Seminary. In 1861 with the coming of the war he was approached to design a flag for the new Confederacy. He offered three designs, one of which the “Stars and Bars” became the official flag of the C.S.A. It was first raised in Montgomery, Alabama on March 4, 1861. It was the official flag from March 4, 1861 to May 26, 1863. 
As early as April 1861, a month after the flag’s adoption, some were already criticizing the flag, calling it a “servile imitation” and a “detested parody” of the U.S. flag. In January 1862, George William Bagby, writing for the Southern Literary Messenger, wrote that many Confederates disliked the flag. “Every body wants a new Confederate flag,” Bagby wrote, also stating that “The present one is universally hated. It resembles the Yankee flag and that is enough to make it unutterably detestable.” The editor of the Charleston Mercury expressed a similar view, stating that “It seems to be generally agreed that the ‘Stars and Bars’ will never do for us. They resemble too closely the dishonored ‘Flag of Yankee Doodle’ … we imagine that the “Battle Flag” will become the Southern Flag by popular acclaim.” In addition, William T. Thompson, the editor of the Savannah-based Daily Morning News also objected to the flag, stating in April 1863 that he was opposed to it “on account of its resemblance to that of the abolition despotism against which we are fighting.”
Stainless Banner (Second Official Confederate Flag)
In the time between the adoption of the Stars and Bars and the decision to replace the flag, the Battle Flag had become well known and popular in the south, and was incorporated into many of the proposed designs for the new flag. The flag that was selected was designed by William T. Thompson, a newspaper editor and writer based in Savannah, Georgia, with assistance from William Ross Postell, a Confederate blockade runner. This flag was a pure white field with the Battle Flag in the canton, and the designer referred to it as “The White Man’s Flag” and stated that its color symbolized the “supremacy of the white man”. The official Confederate flag act of 1864 did not, however, formally state what the white-colored field officially symbolized and thus, many Confederates at the time offered various interpretations. The Confederate Congress debated whether the white field should have a blue stripe and whether it should be bordered in red. As the flag’s designer, W.T. Thompson opposed adding any such additional elements to the white field, feeling it would compromise his intended design. 
Bloodstained Banner (Third Official Confederate Flag)
The third national flag (also called the “Blood Stained Banner”) was adopted March 4, 1865. The red vertical bar was proposed by Major Arthur L. Rogers, who argued that the pure white field of the Second National flag could be mistaken as a flag of truce: when hanging limp in no wind, the flag’s “Southern Cross” canton could accidentally stay hidden, so the flag could mistakenly appear all white.
Rogers lobbied successfully to have this alteration introduced in the Confederate Senate. He defended his redesign as having “as little as possible of the Yankee blue,” and described it as symbolizing the primary origins of the people of the Confederacy, with the saltire of the Scottish flag and the red bar from the flag of France.
The Flag Act of 1865 by the Confederate congress near the very end of the War, describes the flag in the following language:
The Congress of the Confederate States of America do enact, That the flag of the Confederate States shall be as follows: The width two-thirds of its length, with the union (now used as the battle flag) to be in width three-fifths of the width of the flag, and so proportioned as to leave the length of the field on the side of the union twice the width of the field below it; to have the ground red and a broad blue saltire thereon, bordered with white and emblazoned with mullets or five pointed stars, corresponding in number to that of the Confederate States; the field to be white, except the outer half from the union to be a red bar extending the width of the flag.— Flag Act of 1865
As this act passed Congress in March 1865, just before the end of the war, very few were manufactured. 
How The Confederate Flags Were Used After the War
At the 1890 commemoration of the Robert E Lee statue on Monument Ave in Richmond Va, as seen in this picture, people were still flying the Stainless Banner at Confederate memorials, Thousands of Battle flags on display. Northern Newspapers called it a treasonous flag, and couldn’t believe it was being almost worshiped. This banner from an 1891 Reunion card uses the Bloodstained banner. 
Sometime between the 1890’s and mid 1910’s the Battle Flag was starting to show up more and more at reunions and commemorations. Here is a picture of George Washington Custis Lee (Lee’s oldest son) at a 1907 Confederate Reunion Parade in front of the Jefferson Davis memorial, flying the Confederate Battle flag instead of the official Confederate Flag. There is no context as to why the Official Flag was used in the 1890 picture, but the battle flag used in the 1907 Parade. After this point in history the use of the Battle Flag got more common and the Official flag more or less disappeared. 
After the war Robert E. Lee went on to be the President of Washington College, where he was president from 1865 until his death in 1870, when the school was renamed Washington and Lee University. Shortly after he came to the school in 1865 the Kappa Alpha fraternity was formed. They claimed Robert E. Lee as their spiritual leader.
During World War II, when Kappa Alpha students were drafted into the war they brought their battle flags with them. Other southern soldiers adopted the flag as well, as a sign of Southern Pride while in the war. The Confederate flag enjoyed renewed popularity when some U.S. military units with Southern nicknames, or made up largely of Southerners, made the flag their unofficial emblem. Some soldiers carried Confederate flags into battle. After the Battle of Okinawa a Confederate flag was raised over Shuri Castle by a soldier from the self-styled “Rebel Company” (Company A of the 5th Marine Regiment). It was visible for miles and was taken down after three days on the orders of General Simon B. Buckner, Jr. (son of Confederate General Simon Buckner), who stated that it was inappropriate as “Americans from all over are involved in this battle”. It was replaced with the flag of the United States. The use of the flag by soldiers came under investigation after some African-American soldiers filed complaints. By the end of World War II, the use of the Confederate flag in the military was rare. However, the Confederate flag continues to be flown in an unofficial manner: 
When they came back from the war, they took advantage of the GI Bill, and went to college, bringing the flag to one of the most contested fields of battle ever. The Gridiron. As early as the 1940 season, football fans at the University of Virginia in Charlottesville began waving Confederate flags to cheer on their team when it played against northern schools. University of North Carolina fans later claimed that they had begun using Confederate flags years before their southern neighbors.
This started another “controversy” over the Confederate battle flag, when on October 11, 1947 Harvard played University of Virginia, UVA fans were waving their flags with pride as they always had, but when Harvard took to the field, with Chester Pierce, the first black college football player to play below the Mason-Dixon at an all white university. Some hoped they would leave him at home, or not let him play that night. UVA President Colgate W. Darden Jr., addressed Pierce’s presence:
“Chester Pierce, a Negro, is a guest of the University of Virginia, and nothing would shame us more than having an unfortunate incident during the game,” Darden said. Most the students cheered, the Globe reported, and some waved Confederate flags and sang “Dixie.”
In the Northern press, it was assumed that this was some kind of gesture. If not a racist gesture, a taunting of Chester Pierce, with Confederate battle flags. According to Chester “I don’t recall a hint of anything racial on the field. I remember nothing different in that game from any other I played at Harvard … It was no big deal and took no courage by me.” Time magazine noted that “many in the crowd of 22,000 southerners waved flags of the Confederacy,” implying that this was a gesture of intimidation directed toward Pierce. 
In 1948 Dixiecrats, who separated from the Democrat party, determined to protect what they portrayed as the “southern way of life” ran on a platform of racial segregation, and wanted to keep Jim Crow laws. Their symbol was the confederate battle flag. Their platform stated:
“We stand for the segregation of the races and the racial integrity of each race; the constitutional right to choose one’s associates; to accept private employment without governmental interference, and to earn one’s living in any lawful way. We oppose the elimination of segregation, the repeal of miscegenation statutes, the control of private employment by Federal bureaucrats called for by the misnamed civil rights program. We favor home-rule, local self-government and a minimum interference with individual rights.”
Over the next two decades, the flag was waved at Klan rallies, at White Citizens’ Council meetings, and by those committing horrifying acts of violence. And despite the growing range of its meanings in pop culture, as a political symbol, it offered little ambiguity.
In the 1950s, as the Civil Rights Movement built up steam, you began to see more and more public displays of the Confederate battle flag, to the point where the state of Georgia in 1956 redesigned their state flag to include the Confederate battle flag. The Governor said:
“There will be no mixing of the races in the public schools and college classrooms of Georgia anywhere
or at any time as long as I am governor….All attempts to mix the races, whether they be in the
classrooms, on the playgrounds, in public conveyances or in any other area of close personal contact
on terms of equity, peril the mores of the South….the tragic decision of the United States Supreme
Court on May 17, 1954, poses a threat to the unparalleled harmony and growth that we have attained
here in the South for both races under the framework of established customs. Day by day, Georgia
moves nearer a showdown with this Federal Supreme Court – a tyrannical court ruthlessly seeking to
usurp control of state-created, state-developed, and state-financed schools and colleges….The next
portent looming on the horizon is a further declaration that a State’s power to prohibit mixed marriages
Governor Marvin S. Griffin
State of the State Address
January 10, 1956
Two state delegations from New Jersey and Missouri, in Charleston to mark that 1961 centennial of the day South Carolina opened fire on Fort Sumter came in 1961, it hoisted the battle flag above its Capitol, found themselves barred from the segregated Francis Marion Hotel where the ceremony was to take place because they included black members. President Kennedy had to issue an executive order moving the commemoration to the Charleston Navy Base. And when the centennial ended, the flag stayed, proclaiming that South Carolina might have lost the war, but that it was determined not to surrender its opposition to racial equality. 
Lee Atwater said in 1988, talking about South Carolina’s raising of the Confederate Flag in 1962, “You start out in 1954 by saying, ‘Nigger, nigger, nigger,’” Atwater had explained “By 1968 you can’t say ‘nigger’—that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes …” 
According to Euan Hague, a professor at DePaul University, this was the height of the Klan’s popularity, in part because it came during an “anti-immigrant, anti-Catholic, anti-Jewish, and anti-Black” era. David Cunningham, a professor at Brandeis, agrees. “There were hundreds of thousands of members all over the country—Colorado, Oregon, Michigan, and well as in the South. They had a strong national presence, and influenced national politics.” By the 1930s, though, the group was in decline again.
There were some small local Klan resurgences through the ’50s, says Cunningham, “but then after the Civil Rights movement started … the resurgence in the 1950s and ’60s is really about resistance against the ‘imposition’ of northern and federal government on the southern way of life.” This is when the Confederate flag sees a major comeback. “The flag wasn’t absent,” says Cunningham, “but it had not been front and center as a political symbol. It was not shown or treated as a central symbol … Then the battle flag becomes this really direct symbol associated with the Civil War.” Cunningham dismisses the idea of the flag becoming popular again as primarily a symbol of Southern heritage. “It’s about defying challenges from outside of the white supremacist southern way of life, defiance, Jim Crow segregation.” Euan Hague agrees, “Advocates for the Confederate flag [say it was about] ‘100 years since the Civil War.’ It was as much if not more a sign of defiance against desegregation.”According to both Cunningham and Hague, in the ’50s and ’60s the flag began to fly over statehouses and city halls in the south, and was embedded in state flags and other official state symbols. But the flag also began to appear in far more disturbing places: Klan rallies. At the time of the murder of civil rights activist Viola Liuzzo, who was killed just after the Selma to Montgomery march, there were Klan rallies of anywhere from 500 to 5,000 people happening somewhere in the South almost every single night, says David Cunningham. In a small town in North Carolina, the Klan celebrated three of Liuzzo’s murderers; there’s footage. Cunningham describes the rally as even “mainstream white southerners wildly cheering this murder… [And] very front and center is the waving of Confederate flags.” He continues. “It would be difficult to find any public presence of the Klan during that period that didn’t feature multiple Confederate flags.”
 William Porcher Miles and the Battle Flag
 Nicola Marschall and the First Official Flag
 William T. Thompson and the Second Official Flag
 Major Arthur L. Rogers and the Third Official Flag
 Dedication of Robert E Lee Memorial, on Monument Ave, Richmond VA
 George Washington Custis Lee, 1907 Memorial
 East Carolina Kappa Alpha Rally
 University of Florida Kappa Alpha Members
 University of North Texas Kappa Alpha Members
 Chester Pierce
 Cotton Bowl Cheerleaders
 New Years Eve Ball
 Centennial Delegates
 Lee Atwater
 Robert Shelton
 KKK South Carolina Rally
See larger image