[Drake]

You buy cannon ammo from pistol shops.

And yes ships that have a flag over their name are flagships and when you take out their health a timer starts in which time you have to board that ship.

To board a ship look for green circle markers on the side of the enemy ship and go to one of the deck cannons and click on (or hit 8) the grappling ammo and fire at the green circles. When you've connected enough it gives you the option to board the enemy ship. If you notice the enemies on the ship are to high a level for you you can fire your deck cannon at them to kill some off. They will respawn though if you take to long. After you've boarded and killed them all it will sink. And you have to board, even if you've killed them all with the cannon you still have to click board for it to work.