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In this video tutorial, the process of how computers change the carry flag when the ALU adds or subtracts two unsigned integers is explained. The carry flag is a single binary bit used to indicate whether the ALU generated a carry out of the most significant bits. An example is shown using 5-bit registers to add 28 and 6, resulting in 34 (100010 in binary). The result only stores the five least significant bits, with the most significant bit not stored due to the limited register size. This leads to the ALU producing a result of 2 and setting the carry flag to one. The concept of carry is further explained using a number wheel, where transitions from 31 to 0 indicate when carry occurs.