What did the sign of the flies mean for Israel and Egypt?
The sign of the flies meant God made a division between Israel and Egypt, setting apart the children of Israel. God drew a line around Goshen so His people would not have the flies, proving He is the Lord in the midst of the earth and distinguishing His covenant people from Egypt.
Les explains that the sign was God proving His point: He could draw an invisible line around Goshen that even the insects would not cross, so Israel would not have the flies. Verse 23 calls it a division between God's people Israel and Egypt's people—a setting apart of the children of Israel. Les says this reinforced what Israel heard throughout history: You're different, a set-apart, covenant people, separate from pagan Gentiles. He then applies the same principle in 2 Corinthians: as God separated Israel from Egypt, He places a line of demarcation between the believer and the world, for no one can serve two masters.
And I will put a division between my people and thy people: to morrow shall this sign be.