Yes, this would only work for one observer uploading multiple observations of the same individual at the same (approximate) time and place. This happens when someone uploads the same picture as multiple observations and also when users upload a series of pics of the same individual organism individually and not combined into one observation.
Multiple users uploading their own observations of the same individual organism in the same time and place is ok (if annoying for IDers). That shouldn’t be flagged.
One other potential issue that intersects here is current difficulty in the interface of deleting pics from or adding pics to an existing observation (which has also been discussed on the forum, feature request here). This probably also contributes to @schoenitz 's observation that dupe flags aren’t addressed by users. Though to be fair, I think that there would still be a ton of dupes even if that process were easier.
I think that in general a flag for this would be a positive and would certainly help out IDers. One suggestion would be that flaggers could add the address or observation ID of the legit observation that has been duplicated to the flag or in a comment to help with understanding. My current practice is to post this info in a comment, but if a flag is available it would be better there. Having flagged observations go to casual to take them out of the ID pool would be my preference. Without that action, I think that the benefits of the proposal would be limited.