Im sure Greg or others will chime in with what the offical Vex term actually is, but have heard it referenced different ways including see-through, peek-through, cut-through, cut-out, etc.

The desire to keep a given flag down to one respective layer for weight and fly ability seems to far predate the civil war era in my observation. But havent personally tracked to when this may have started.

Based on my research and observations the most common practice would be to apply and sew the overlay, stars, Corp badge insignia, design or whatever it is sewn onto the intact field first, then cut away the field area related from the reverse, then hem in the loose raw edge where it was cut out. This seems to be the common practice on single layer flags of the era. It would be quite cumbersome and difficult to first cut out a "hole" then try to insert/patch/cover it with a second piece of cloth.

Just an opinion and observation
Frederick