Shemale is a reclaimed slur for feminine individuals with a penis. Although it is used in a dehumanizing and fetishizing manner as a transphobic, altersexist, or intersexist slur, some have chosen to reclaim it, particularly transfeminine people who want to keep their penis (TW-Altguina), intersex folk with feminine appearances and a penis, or AFAB women or non-binary people who desire a phalloplasty (w-altguina). This term is most often used as a slur against intersex, altersex, and transfeminine sex workers.
Besides it's reclaimed use, it should not be used on any individual, especially those who have not reclaimed this term. No individual should use the slur unless they themselves have the right to reclaim it. The term should only be reclaimed by those who desire a penis, while being müllerian, intersex, or transfeminine.
This term is very similar to d*ckgirl in its usage.
History
Since the mid-19th century, the term she-male has been applied to "almost anyone who appears to have bridged gender lines", including effeminate men and many lesbians.
The term came to have a more negative connotation over time and been used to describe a "hateful woman" or "b*tch." Up through the mid-1970s, it was used to describe an assertive woman, "especially a disliked, distrusted woman; a b*tch." Over time, it changed to be targeted more towards transgender, transsex, intersex, and altersex folks.
In 1979, Janice Raymond employed the term as a derogatory descriptor for transgender women in her controversial book, The Transsexual Empire: The Making of the She-Male. Raymond and other cultural feminists like Mary Daly argue that a "she-male" or "male-to-constructed female" is still male and constitutes a patriarchal attack by males upon the female essence. The term has since become a derogatory term applied to trans women and other people on the LGBTQ+ umbrella.
Flag
The flag appears to have been coined by Tumblr user lgbtqiarchive on March 13th of 2019. It has no confirmed meaning.