I took some classes on ponds and gardens a few years ago. The guy who taught the course used to do in-ground ponds with cinder block all the time. He would dig the trench, and then line it with the block. He would then place the liner in the lined hole, and set the flags on top of the blocks and liner, loose, and just let the weight hold things in place. Of course, the weight of the water also held things in place once he filled the pond.
Since your pond is above-ground... I'm assuming you are going to mortar or somehow anchor all of the cinder block so that the structure holds its shape? Otherwise, you run the risk of the blocks moving or shifting and then your stone facing will just crack and fall off. Especially since the pressure of that water will be pushing outward with some major force.
Yes, you can stick the flags to the cinder block with basic masonry mortar. There are some additives, latex, etc. that you can add to the mortar to make it more, "flexible". But if your basic structure is solid, you won't have to worry about that.
You can also use a heavy duty construction mastic (glue), which comes in a caulking tube and is like iron when it dries. Just be sure to apply a nice, thick bead of mastic under each stone. You should be able to take your hands off of each flag as you stick it on; the mastic should be thick enough that the stone stays in place.
The person above is referring to "tooling" the joints. Buy a bag of regular masonry mortar at your local home repair store. Get a joint "bag," which is like an oversized canvas pastry bag. They should sell them in the same area at the store. Mix your mortar with enough water that it can be squeezed (like cake icing) out of the end of the joint bag. Don't make it too runny, it will be a mess and won't dry strong.
Squeeze the mortar into the spaces between the stones (the joints), using enough to get under the joints and behind each stone. In other words, fill the cracks up until the mortar bulges slightly above the level of the flagstone.
Then take a trowel, or a joint tool (which is basically a piece of metal that looks like a butter knife in the shape of a "v"), and smooth out the joints so they look pretty. As the mortar dries, use a wet rag to wipe any extra mess off of the flagstones themselves.
Sounds complicated, but it's pretty easy. Almost anyone can do it. You just need lots of patience.