In the episode, Chef's passionate protest declaring the South Park flag racist inflames the entire town.
The South Park flag depicts four white figures hanging a black one on a gallows, inciting Chef's indignation and leads him to believe that the whole town is racist.
He gets the team to dig up some dirt on Stan and Kyle, hoping to win the debate with ad hominem attacks on their credibility.
At the City Hall, members of the KKK march up, loudly voicing their support for the current flag as a symbol of "white power".
The mayor fails to appease Chef by revising the flag so that the black stick figure being hanged appears to be smiling, and decides not to make the decision herself.
When the turn of Stan's team comes, Kyle gives their side of the issue by saying that killing is just a natural part of life and should not be a big deal.
After Jimbo and Chef decide to come to a compromise, Kyle declares that they do not need to debate anymore, although Stan is still frozen with shock after seeing Wendy kissing Cartman.
Chef delivers the moral of this story: his inclination to anti-racism almost made him a racist himself, and that perceiving things according to race leads only to further racism.
According to the DVD commentary, the episode was based on the initial controversy over the display of the Confederate flag at the South Carolina State House.