Google officially began indexing forms of Flash (SWF) files in 2008. But there were signs of Google indexing Flash back in 2004.
That being said, Google announced that they are able to index and use "almost any text a user can see as they interact with a SWF file on your site." Google said:
Currently almost any text a user can see as they interact with a SWF file on your site can be indexed by Googlebot and used to generate a snippet or match query terms in Google searches. Additionally, Googlebot can also discover URLs in SWF files and follow those links, so if your SWF content contains links to pages inside your website, Google may be able to crawl and index those pages as well.Last month we expanded our SWF indexing capabilities thanks to our continued collaboration with Adobe and a new library that is more robust and compatible with features supported by Flash Player 10.1. Additionally, thanks to improvements in the way we handle JavaScript, we are also now significantly better at recognizing and indexing sites that use JavaScript to embed SWF content. Finally, we have made improvements in our video indexing technology, resulting in better detection of when a page has a video and better extraction of metadata such as alternate thumbnails from Flash technology based videos. All in all, our SWF indexing technology now allows us to see content from SWF files on hundreds of millions of pages across the web.
I wrote a bit more on this at Search Engine Land.
In short, it does not mean you should build your site fully in Flash. It does mean that Google is better understanding Flash and the content and links within those files.
Forum discussion at Search Engine Watch Forums.
