There's much less distance to move, it's a lot faster to rotate the wrist than it is to swing the arm up and down. I can't speak for the flamenco style (but Hanspeter and others have really good tutorials, check out that section) but I do know spanish guitar uses a lot of crafty fingerstrumming techniques. Watch a little bit of Gypsy kings and the like and you'll see that it's a lot of rotating for that flamenco sound. That's the best I can explain it.

http://www.youtube.com/watch?v=mifnMC_Kn1Q