I have to confess that I had never heard of using bags of water to repel flies and only after doing some research realized it is actually quite common in some parts of the US. This is a bit of an old wives tale as there is no scientific proof that this works. That said, with so many people swearing by it, it may have some effect on the flies.
The idea is that you hang a clear freezer bag of water outside your door and it will scare flies away from your home. US restaurant owners use this as well to try and reduce the flies that like to lurk around bins etc. So how is it working? The best explanation I could find is that the way water reflects light upsets the flies. Our little buzzing friends have compound eyes, which means that they have around 8000 lenses. The doesn't give the fly great eyesight but means it can detect movement really well (which is why they are so hard to swat). A bag of water reflects light in all directions and the flies could perhaps mistake the bag for a wasp or hornet nest. The fly would want to avoid these insects as they like to eat flies. Perhaps someone could do an experiment to show that it really does work. You could put one of those sticky pad fly traps in a particularly fly prone area and count how many flies you catch. If you hang a bag of water up next to a fly trap someone else you can see if the number of flies caught is reduced when the bag is present. You should do it in several areas and repeat it several times before you can be sure of your results.