Flax, once harvested, must be soaked in water to process it further. This soaking helps to separate the fibers from the less useful parts of the plant. The byproducts of rotten flax eventually become some of the most fundamental items in Egypt, such as rope and canvas.
In order to rot flax, you must have the flax processing skill, some flax, of course (note: harvested flax, not flax seeds), and be standing near a body of water. The rot flax command is found by clicking on yourself->Special... Once you have selected the number of flax to soak, a buoy belonging to you will appear with a red flag. It takes 5 teppy minutes to rot flax in salt water, and 15 teppy minutes to rot flax in fresh water. Once your flax has rotted, the buoy's flag will change color to white, at which time you can pick up your rotten flax.
Alternatively, flax may be rotted in a tub.