Probably true - I haven't flagged yet.
If a user with a lower reputation tries to flag a user with a higher reputation, does it act on their 'potential payout' but not their 'reputation' or does it do neither?
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Flagging with lower reputation does very little to higher reputations. The payout always lowers based on voting power and STEEM POWER alone.
Thanks.
It sounds like you are advising to flag for the sake of it.
However, flagging is supposed only to be done for the reasons listed after clicking the flag button (fraud, trolling, spam and disagreement on rewads). I guess you primarily mean the "disagreement on rewards" point when you feel that a post has a disproportionally high potential payout compared to the value and originality of its content.