The Confederate Battle Flag was used by Southern Forces during the Civil War. The flag was adopted for at a distance the first Confederate National Flag looked to much like the Stars and Stripes (In the 1860s, units still used flags to "form up" for Combat thus it was an important military issue). What the South did was reverse the old Socttish National Flag (Red Stripes on a White Flag) to the While Stripes on a Red Flag, then added 13 stars to represent the States of the Confederacy AND Maryland and Kentucky.
Side Note: Battle Flags are by tradition Square (3x3, can be three feet, three inches etc, but the Flag's height is always the same size as its length), Mational Flags are 3x5 rectangular (Three feet, inches, meters etc in height and Five of the same unit in Length).
Now, in 1863 the South Adopted the Battle Flag as PART of its Second National Flag, the Battle flag is in the same corner as the Stars in the US Flag, the rest of the flag was white. In 1865 a Red Strip was added (Through if the flag was ever flown in a subject of debate given that Lee Surrender in April while the "Third National Color" had only been adopted in January). The South also adopted a Naval Jack for its warships. In the US Navy the Navy jack, which flies to the rear of the National Flag on a Ship, is just the Stars of the National Flag. The South adopted a 3x5 version of the Battle flag as its Naval Jack.
There is no reported use of the Battle Flag, the Naval Jack or the Confederate National during reconstruction for flying them came to mean rebellion which the occupying Northern Forces could use violence to suppress (and times were hard in the South, most materials even old flags were reused as material for other things, so most such flags disappear and are NOT reported till 1905).
Now, the Second KKK was formed in 1905 on Stone Mountain. The Second KKK adopted the Confederate Naval Jack (Which it called the Confederate National Flag and/or Confederate Battle Flag, both terms are used to this day by most people) as its symbol. This was to support the Second KKK's position that it was a continuance of the original KKK of the Reconstruction era (Which had been formed in 1866, and dissolved in 1870 as the Federal Government passed the Anti-KKK act of 1871, which is still part of the Civil Rights laws of the US). As the Second KKK expanded in the years between 1905 and the mid 1920s, the use of the Confederate Naval Jack (Referred to as the Battle Flag by ALL sides in the Civil Rights Debates) expanded. In the mid 1920s the KKK suffered a serious of scandals and like the tea party of today found that it had expanded so far that it no longer stood for anything by its leaders powers. As those leaders fell into scandals the Second KKK dissolved from what had been viewed as a pro-USA organization back to is racist roots.
As the KKK dissolved, parts of it reformed once again in what many historians call the Third KKK. Unlike the Second KKK which emphasis being pro-america in addition to being anti-African American, Anti-Jewish and Anti-Catholic, the third KKK was clearly a racist organization and emphasized this by making the Confederate Flay its symbol. As the move to give African American Civil Rights increase starting in the 1940s, the Third KKK became the violent organization we know from it height in the 1950s and 1960s (Not that the KKK was ever a non-violent organization, but the Second KKK down played its violence as a means of "Self defense" and the press went along with it down playing the violence).
Do to the above history, the South re-embraced the Naval Jack as its symbol during the 1950s and 1960s. Georgia and Mississippi even added it to their state flags in that period (Other southern State flew the Naval Jack below the Stars and Strips over their State Capitals).
Georgia 1956:
http://en.wikipedia.org/wiki/Flag_of_Georgia_(U.S._state)
1894 for Mississippi:
http://en.wikipedia.org/wiki/Flag_of_MississippiOther states use of the Battle Flag:
http://en.wikipedia.org/wiki/Flags_of_the_Confederate_States_of_America