I can understand perhaps putting them on when approaching a car to be lapped, especially if you're under pressure from another driver and want a clean pass. But actually flashing them at another driver is somewhat unnecessary. If you're quicker, I'm going to be aware of that by the fact you are there at all.
Also, I wouldn't look to the BTCC to provide examples of driving standards.
Well, touring cars in general don't have pristine driving standards in comparison to some other types of motorsport like F1 or open seater racing (from watching the BTCC, STCC, ETCC, WTCC, DTCC and some other one make series such as the SEAT Eurocup etc.). I have seen headlights used in touring car series other than the BTCC too, its just that I watch BTCC the most.
But actually flashing them at another driver is somewhat unnecessary. If you're quicker, I'm going to be aware of that by the fact you are there at all.
As I said, its just all about the mind games; some drivers won't be affected by such antics, others will and therefore may be more prone to making a mistake. Some drivers may think flashing their lights at a driver may distract them enough into making a mistake, some drivers may think that it makes no difference and therefore don't do it all and concentrate on their own race.
With all that said, this is just my opinion; I am just making educated stabs into the minds of real racing drivers as to why they do it, and from what the commentators say.
Extra - I have just remembered a WTCC race from a couple of years ago, I cannot remember which, when a driver had been stuck behind another for about 75% of the race without being able to pass him. One of the commentators, who was (or maybe still is) a racing driver, gave a suggestion into what the driver behind should do; he said he should think about trying to distract the guy in front by flashing his headlights, to try unsettle his rhythm, as the the leading driver was driving a perfect, error free race.
If I can remember that race, I will try and post a video of it. I think it was maybe 2008 or 2009 at Puebla, but I am making a pretty wild guess.