It seems like the main purpose of this is to try to hide offensive material from being accidentally found:
When a person visiting a blog clicks the “Flag?” button in the Blogger Navbar, it means they believe the content of the blog may be potentially offensive or illegal.
The spam blog part seems like its almost a afterthought:
For more serious cases, such as spam blogs or sites engaging in illegal activity, we will continue to enforce our existing policies (removing content and deleting accounts when necessary).
This is a small step in the right direction. I’m sure now that Spam Blogs are getting more attention more resources will be spent on defeating them and the community as a whole should be able to get a handle on them. Its good to see everybody getting in on the action to defeat these spammers.