The flag/sail idea could work. Something like the censure of agony was also suggested by another mmoc member on this thread. I think it might be the best way to go for something like this. And yes, I'd love to have flags/sails that represent the various factions! Some could be obtained from the faction's quartermaster, others via quests. As far as cosmetic changes are concerned, there's so much that could be done.
For instance, there could be a quest like this one:
Quest: Escort to safety the Night Elven ship.
Reward: Darnassian Sails
A quest like this one could also reward a cosmetic upgrade that makes your cannons more darnassian-like (although I'm not sure Night Elves are fond of Cannons). As I also said in the original post, similar quests could reward you with unique crew members, like a Night Elf Huntress, in this case.
It would be fun to see race-specific cosmetic upgrades. or even class-specific upgrades. Death Knight could envelop their ship in ice, Mages could have brooms sweeping the deck, etc.
@Ttak82 Thank you for the feedback! I like your suggestions, but I don't agree with all of them. Plus, I think that moving ships with WASD would make them more engaging.
Anyway, regarding your suggestions. I don't agree with 1 and 2. I really don't want to see this feature turning into a phased/instanced thing. 4 is something I'd like to see in a feature like this. Having aerial enemies could even make it more interesting. I'm also not sure about Ammo. On one hand I think it would make ships more interesting, on the other hand I think it could make the feature troublesome. I like your other suggestions! Thank you for sharing them with us!
@Serenais Well, people could hop from one ship to the other if both ships are close enough, but it would be nice to have them connected via ropes, planks, etc.
Here's another achievement I came up with: