@imustbethedevil - flashing your phone just means that you're putting different software on it.
@cvam1985 - yes being able to create custom kernels means people will be able to start creating custom images/ROMS. Including 1.6 and 2.0. But it could be awhile before we get that far.
the problem the people were having that were working on this was flashing the phone with anything custom. we've been able to flash with the stock image for awhile now. being able to flash with custom kernels will allow the development of a full custom image.
The first step will probably to create a custom 1.5 image with root access. Then moving from there to other versions.
Once again I want to point out that I didn't do this. This was the great work of alot of other people. The person that actually flashed the custom kernel was peepsalot. Awesome work.
I'm not a linux guy, so a lot of what he did makes no sense.
But I know how compiling works a bit.
And link cracker is correct. It will allow devs to kook up some goodness for our phones without the stress of stupid applications and such.
So, a flashed phone, if you get to that stage of crazyness, will basically make it more functional.