What does the flute item do?

In practice the flute is the game's call for help. It has two uses. Out in the world it drops your coordinates in front of nearby players and friends, so someone can come to where you are standing rather than hunting for you. In a boss fight it calls for assistance mid-battle, which is the version you will reach for when a fight is going badly.

The people it reaches are not only your friend list. A flute can pull in a random player, so whoever turns up to help may be someone you have never met. That makes it useful when you are playing at a time none of your friends are online.

It is an invitation, not a command. You are asking players to come and assist, which means the flute is only as good as who is around and willing when you use it.

Not settled: Whether you choose who the call goes out to, or the game decides between friends and strangers for you, is not settled.