There are the Community Moderatorsthe Community Moderators who handle those flags.
I am pretty sure they try their best to handle as many flags as they can in the time that they commit to the site. Of course, on a site the size of Stack Overflow, the number of flags is pretty high and some of these may slip through the cracks and stay unhandled for long periods.
Community moderation is the best way to improve the effectiveness of moderator as then they can be where they are really needed.
- As custom Mod flags generally require more attention and time than other flags, I would suggest to use them only when none of the other flags fit the case.
- Also, try to use close votes and downvotes and post comments as often as you can rather than flagging for mod attention. That is all that is needed in the majority of cases.
Also, Moderators are intrinsically motivated to participate and help in the sites functioning. They dont need rep bonuses or badges to motivate them. What they do need, are more effective tools.