The earliest "living flag" reference I find is a group of Los Angeles schoolgirls in the 1890's. A considerable number of them are recorded in that decade so there must be earlier examples. This one is certainly from that period, it is a primitive and ragtag posing but quite charming nonetheless. I am sure the "conductor" had greater expectations when he told the children what to wear then next day. Perhaps the origin of the living flag photograph is to be found in parades after the Civil War?
Arthur Mole had it easier...his participants were used to not squirming like schoolchildren, they being all well-trained soldiers. Several of his staggering works are shown here, they are available at the Library of Congress website.
The funniest living flag is certainly the one in Lake Wobegon, which keeps breaking up as the participants with red, white and blue baseball caps leave to climb to the third story buildings on Main Street and look down. Garrison Keillor has said his living flag was based on a 1917 photograph of several thousand army trainees arranged on a football field to form the Liberty Bell, this was certainly the photo produced by Arthur Mole shown here.
Spencer Tunick, of course, does not ask his participants to wear baseball caps or anything else. To date, the largest Spencer Tunick piece has been 18,000 folks in Mexico City. He is no Arthur Mole, and the idea is getting a bit tired by now anyway.
There was a living flag made in Portugal to celebrate the country's soccer team making the finals in the World Cup, it was comprised of 18,788 women dressed in red, green and black. That one I'd like to have seen, but not as much as a Mole.
"Living Flag" photograph Anonymous c. 1880 Collection Jim Linderman