My question is: Is there any time limit to have a flag approved / rejected? If "NO", then why we don't have such a time limit? What happens to the flags that remain unreviewed?
All moderators see a counter of active flags on every page of the site, so they are constantly reminded how many flags are still unhandled.
There is no hard rule for how long it will take until a flag is handled. Most flags can be quickly handled when a moderator is available, stuff like spam should be gone quickly. The actual time depends heavily on the number and activity of mods, their time zones and the amount of community moderation.
Some flags take more time to investigate or come to a decision, moderators might keep them in the queue to remind them of the issue.
Usually within a day receive responses to flags. (depend on availability of moderators).
I have once response to my flag at most after 8 days. Sometimes it take time to get responses to flags. May be many moderators on vacation or discussion needed on flag.
This would be great if there can be documentation how much maximum time will it take to respond flags. But we can't force them to have it. Because they are giving their own time to react on flags and decision needs to be perfect.