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The "Sons in Service" flag was used during World War I and World War II. Each family was entitled to hang a small Son In Service flag in their window, the blue star in the center of the red-bordered white rectangle signified a family member in active service. The star was replaced (or covered) with a gold star (in practice, yellow or dark yellow) if the family member died in action. (Hence the name of the organization "Gold Star Mothers" of women who had lost sons in the war.) There were other variations to the star for missing in action, injured, captured, etc, etc, but flags of that sort are rarely, if ever, seen.
Sons in Service flags made and used by families usually were no larger than about one foot long. They were always hung vertically, a stick being sewn into the top heading of the flag and a piece of string attached to both ends of the stick - the string suspended at its midpoint from a hook or some other feature of a front window of the home.
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# A Blue Star - "Service in Army or Navy."
# A Blue Star with a Gold Greek Cross in the Center - "Wounded in Service."
# A Blue Star with a Gold Ring superimposed - "Decorated for Distinguished Service."
# An inverted Blue Star with both the Gold Greek Cross and the Gold Ring (as in (2) and (3)) - "Missing."
# An inverted Blue Star inside of a Red Ring - "Captured."
# An inverted Blue Star superimposed over a Red Pentagon - "Wounded and Decorated for Distinguished Service."
# A Gold Star bordered Blue with a Gold Ring superimposed on it - "Decorated for Distinguished Service," also seems to indicate the serviceman died, but that is not stated.
# A Blue Star superimposed over a Red Pentagon with a Gold Greek Cross in the Center and a Gold Ring Superimposed on it - "Wounded, Decorated for Distinguished Service and Missing."
# A Gold Star bordered Blue with a Laurel Wreath superimposed on it - "Died in Service. Laurel Wreath Optional."
More:
http://www.crwflags.com/fotw/flags/us%5Esvc.html