This is more of a complicated and contraversial issue than you realize....
I think the bottom line is that the game is defining sides based on the
military/political situation on the
land in absolute terms, which is not always legitimate since as a submariner in the game you are primarily worried about
civilian targets at
sea and how BDU would feel about it in more relative terms. Here is a summary of a couple of points that I am aware of having been debated:
1) Varying degrees of neutrality. This sounds stupid, but nonetheless is a problem. The game only has one type of neutral, and therefore, only 1 choice to either punish or reward a player for sinking a neutral ship (which choice it is is modable) Historicaly, it was sometimes ok (or there was a blind eye turned) to sink technically neutral ships (even if alone), especially if they were in English waters. For example, Prien, Schepke, and Kretschmer all sank lone Norwegian freighters before war was declared on Norway, and these ship's tonnages are fully included in their career totals, and, AFAIK, none of these commanders were formally disciplined for this. However, sinking a United States ship anywhere was almost always frowned upon before Pearl Harbor since Germany didn't want to provoke the US. It was also always frowned upon to sink Spanish ships and many others...
So, in versions of the game where sinking a neutral ship is punished (which is stock game and most if not all major mods), some people have debated that Norway and some other countries should be made allied from the start of the war so they can sink their ships without being punished. Other people disagree....
2) Countries occupied by Germany. In the game we have France and Free France, but really this distinction should apply to
all countries that were occupied by Germany. Take your example, Denmark. When the country was occupied, I believe that much of its shipping was taken over and forced to trade between axis ports, while others that were at sea at the time continued to trade between allied ports and sometimes even sailed in allied convoys. Similar things happened in Norway, etc. Now, saying that Denmark was an axis country understandably tends to offend Danes who feel that their country was seriously abused by the Germans, however, I know of at least one Danish ship that was sunk by a
British sub as it was trading for the axis. So assingning the loyalties for many countries should go on a ship by ship basis, and when you try to say absolutly that all the ships of x country are on y side (or compromise by making the country neutral), the the entire thing is very contraversial and thats why you are seeing different choices.
3) ships in convoys. I see this as a composite of the two problems mentioned above.
All ships in an allied convoy are legitimate targets for the player, and if the particular ship is from a neutral country or occupied country then no matter how that country is being handeled it should be allied while in convoy so the player is not punished for sinking it.
You aren't the only one working on DefSides and Flags, as I know of some work in progress here where someone (the creator of improved convoys I think) is trying to take some rare, unused nations and turn them into the allied analog of neutral/occupied nations for convoy use.
For example, a Norway that is always allied even if regular Norway is neutral but some are opposed to the removal of certain nations to do this.
Anyway, no one DefSides.cfg is absolutly agreed or agreed apon by everybody, sorry
Hope this helped.