I would like to know the answer to this too. My sister bought a new Khyam tent which leaked sround the front door/porch. We weren't sure if it was to do with the flaps and kept changing them. It was better with the flaps out but rain still came in although not as much.
As said, if you have a tent with a groundsheet, when it starts raining its best to tuck them under, especially if you are on a slight hill, then the rain runs underneath the tent/groundsheet.
If its dry, i'd keep them flapping, to get a draft underneath.
The downside with flaps is you need to keep them clean, otherwise you end up packing away a muddy tent.
It depends where the pegging points are If the pegging points are to the inside of the flaps, then the flaps go OUT, but if the pegging points are to the outside of the flaps (which is more common) then the flaps go INSIDE & you took them under the groundsheet to stop draughts.
All of the above answers depend on you being pitched on flat grass, and this is seldom the case. Some of mine just dangle and flap, some reach the ground, and are either pegged under or outward depending on the slope.
One day I will find myself pitching on dead flat grass, and have no idea what to do with the flaps