Is there anyone on this group who has gone through the procedure, and
can tell me what exactly I should need to do to set up the flag.

I had my railcard added to my student oyster last year [I'm not in
London at the moment so haven't bothered this time]. The man in the
North Greenwich ticket office took my oyster and railcard, spent a few
minutes typing away at his machine, then it was done. Try a station
with a bigger ticket office, increase the chance of getting a man who
knows his job.

Chris