What does the fringe on the flag represent?

Absolutely nothing. Fringe on a flag is purely decorative. It serves no function, nor does it represent or imply anyting about the status of the flag except that it should not be flown outside on a flagpole. Fringed flags are used in schools, churches, courtrooms, auditoriums, parades, etc., simply because they look fancier than un-fringed flags.