I believe the flat side faces the engine and the lip side faces out. You fine adjust with the washers provided and secure with the locking (folding) washer. You should try and replace this each time you remove the sprocket.
I didn't notice a flat side on mine, I just mounted it with the stamp that shows how many teeth facing out cos thats the way I have always done it. As long as it is aligned with the chain and the teeth are centered in the links I don't see how it makes a difference.
I could have been a squid, but I was too busy posing.