First off let me say that I’m slightly annoyed at the terminology already used by D&D, because it makes diferentiating a error in character abilities from a playable limitation difficult. What D&D refers to as character flaws I would call a limitation: Your character is afraid of snakes? Very good, have fun playing with that characteristic.
What I would refer to as a character flaw is a character whose game balance is flawed. If your character cannot hit an enemy, notice any object in a room, recall any information, or survive a couple of enemy attacks, then I would call that character flawed.
I’ve been playing a Dwarf scholar in an RPG called Adventures in Middle Earth for several years, and when the character was at his first level he was flawed. In the first two battles we played he was almost totally useless, and in the next two battles he came very close to dieing. Fortunately our DM saw this issue and realized it for what it was, a flaw in the characters balance. To remedy it, he gave my character a more powerfull weapon. I still didn’t hit very often, but when I did I could take out a significant chunk of the enemies health. I now had a chance of removing enemies before dropping unconscious.
We played Adventures in Middle Earth again last week, and I took a moment to appreciate that my character has some limitations, not flaws. My character can’t talk very well, but insists on trying. It results in alot of fun, but he can easily be overruled by other players. My character can also hold his own in a battle, sure, he might get down to single digit health points, but I know I can deal damage and heal myself, battles aren’t frantic attemps to survive anymore, they’re fun.