Not to be nitpicky, but the Canadian flag looks a bit off… it looks like it’s divided into thirds, but the red portions on the sides are supposed to be more narrow. And the maple leaf is tiny!
Yours: 
Wikpedia: 
Oh, and Macau has the Swiss flag.
Alright, after a bit more sleuthing: many flags are off. It looks like all overseas territories just got the flag of their “motherland” instead of their own.
Examples:
- British Overseas Territories
- Anguilla
- Bermuda
- Cayman Islands
- Dutch Overseas Territories
- Aruba
- Bonaire
- French Overseas Territories
- French Polynesia
- Saint Martin
- U.S. Territories
- Guam
- U.S. Virgin Islands
and a bunch more. I understand these aren’t technically countries, but why not use the proper flags if they’re listed separately anyway?
I agree that most flags seem to have spent to much time in the washing machine, but maybe it’s a intended effect to avoid being too visually disruptive with the UI.
Regarding overseas territories, what would be the rationale to do so ? At least, the “state” notion has the advantage of being clearly defined (and disputing it usually implies wars). If we start giving local flags to overseas territories, we could as well start subdivide the USA, the UK (already the case with football afterall), the Russian Federation, etc.
I don’t mind the colours, but the dimensions of the Canadian flag seem simply wrong.
As for territories: they represent themselves at sporting events, under their own flag, but as you pointed out, there are irregularities for that. I just pointed it out because I lived on Grand Cayman for a year and nobody would consider the British flag the “correct” one there. Not sure about other territories.
The washing machine changes both the colors and the shapes. Canada happens to have the same kind of size ratio as the Union Jack, whereas most of flags are more squarish (sometimes too much as Switzerland) and the underlying border clamping could hence be the culprit. That being said, it could have been worst (Chypre is totally white per instance).