Peter Jackson, a scholar of sexual politics in Thailand, claims that the term kathoey was used in antiquity to refer to intersex people, and that the connotation changed in the mid-20th century to cover cross-dressing males. During that time, the use of kathoey included anyone who deviated from the dominant sexual norms.
Use of the term now typically implies that the person identifies as a type of male. The term can refer to males who exhibit varying degrees of femininity. Many dress as women and undergo feminizing medical procedures such as breast implants or HRT. Others may wear make-up and use feminine pronouns, but dress masculinely, and are closer to the Western category of effeminate gay man than transgender.
The term kathoey may be considered pejorative, especially in the form kathoey-saloey. It has a meaning similar to the English language 'fairy' or 'queen'. Kathoey can also be seen as a derogatory word for those who identify as gay.
The kathoey flag is posted in r/vexillology by u/mongoose_cheesecake on April 10, 2017. The flag consists of a diagonal cross between the Thai flag and the transgender pride flag.