Ah, not a literal flag in this case - in games, a "flag" is a setting in the code that is activated to allow the next function or event to start, for example. Since talking to NPCs sometimes flips the flag in a game, and this game has NPCs, I was suggesting that maybe talking to them was required to proceed to Level 2.
Back to the first suggestion: make sure to download the full game. If no joy, post screenshots so we can be sure about what's going on.