Banners (decorative)

Banners are a Decorative Furniture item that can be placed on ceilings. They come in red, green, blue, and yellow varieties, along with many collectable non-craftable varieties. All crafted banners are crafted with Silk. They can only be placed on the underside of blocks, not wooden platforms. Despite being multi-colored, crafted banners do not require any dyes to craft.

Note that banners occupy space like other types of furniture, and thus cannot overlap with other furniture. That is, you can't put a banner "behind" another piece of furniture.

Monster Banners are vanity items that are dropped randomly by various mobs, similarly to Bosses and their corresponding Trophies. Almost every mob in the game drops a banner. Each banner corresponds to the mob it was dropped from, although not every variety of a mob drops its own unique banner. Each banner has a 0.5% chance to drop from its corresponding monster.

Faction Flags are a category of non-craftable branners found in the Dungeon. These are placed by the game to communicate to the players where specific opponents will spawn.

Noncraftable Banners
Non-craftable banners were added in 1.2 and are found in separate areas:

Dungeon Banners
See Faction Flag for more info.

Normal Monster Banners
See Monster Banner for more info.

Hardmode Monster Banners
See Monster Banner for more info.

Trivia

 * Crafted banners are the same color of the Teams in multiplayer.

History
Bannière Знамя