Script used to work, stopped working?

Reformat your code with indentations for organization and readability purposes.

The only error I see is on line 5.

Player = game.Players.LocalPlayer
Mouse = Player:GetMouse()
Tool = script.Parent
Ready = true
Flag = game.Workspace.WhiteFlag -- You can either capitalize the "w" in "workspace" or omit "game."
-- Flag = workspace.WhiteFlag

function click()
    if Ready then -- You don't need the "== true." It's like saying "if true == true then," when it can be shortened to "if true then"
        Ready = false -- Re-positioned this, just in case
        Flag.Position = Mouse.Hit.p + Vector3.new(0,3,0)
        --[[ Use a "for" loop instead!
        Flag.Transparency = 0
        wait(0.25)
        Flag.Transparency = 0.25
        wait(0.25)
        Flag.Transparency = 0.5
        wait(0.25)
        Flag.Transparency = 0.75
        wait(0.25)
        Flag.Transparency = 1
        ]]
        for i = 0, 1, .25 do
            Flag.Transparency = i
            wait(.25)
        end 
        -- Compare the 9-lined code to the 4-lined code from the "for" loop. Imagine if you wanted to do smaller increments on the transparency. That 9-lined code will stretch, while the 4-lined code will stay the same. o.e
        Ready = true
    end
end

Tool.Activated:connect(click)