IIRC for Flagged photos to show in a collection you need a Smart collection. That is unless you manually created a collection called Flagged Photos and manually added those images that you flagged to it.
If it is a smart collection then any image that you placed a Pick flag on will show in that smart collection. Unless you actually remove the flag they will continue to show in that collection.
Thanks for your answer.
Yes, the description is a bit misleading maybe. It's not a smart collection, I just added n photos to a collection based on some criteria (here: e.g. flagged photos) and then removed some of them from the collection (without removing the flag/pick in the catalog folder).
I haven't gotten to the bottom of the issue yet, so I'm starting over.
Please post a screen shot of the Library module and the Collections section expanded.
Starting over won't solve your original problem if you are doing something wrong to start with. Without seeing a screen shot it is hard to tel what might of gone wrong with your initial setup.