Using a flat file on the IBM i is just a file with one big field defined in a physical file that contains all of the data. You define the fields in a high level language program like COBOL or RPG. Then the file is read sequentlially record by record to retrieve the information you want.
It usually was seen when you converted to a System 38 from a System 3, system 34 or System 36 which did not have an integrated database like the System 38, AS/400, iSeries, System i or IBM i today.
If you can find the starting and ending point of key fields you can create keys that can be used to read the file in key order or go to a set of records in a much shorted method than just reading the file sequentially.