Photoshop liquify

 

Using the liquify tool I warped the text to follow the follow the folds of the flag to create the illusion that's its actually on the flag, to do so I had to rasterize the type first so photoshop would treat the text as an image.

I also changed my brush size when liquefying depending on how big of an area i was trying to warp

If I spent more time i could probably make it better, using blending modes may also helped