The correct answer is "he was referring to an actual American flag that was sewn by Mary Pickersgill to fly over Baltimore."
When Francis Scott Key wrote about the "star-spangled banner," he was referring to an actual American flag that was sewn by Mary Pickersgill to fly over Baltimore.
Indeed, he got the inspiration from a real-life moment during the War of 1812. He was in Baltimore, Maryland, when the Royal Navy of England arrived at Baltimore Harbor. They were there to fight in what was known as the Battle of Baltimore in September, and he was trapped during the attack of Fort McHenry. He spent one day waiting for the right moment to leave the harbor when he contemplated an American flag waving in the air. Then, he got the inspiration to writhe the "star-spangled banner.