When you rest in the bed at Monstro Town, they play a game with you called "Find the Flag". Each of them hides a flag somewhere. And here are the locations.
#1 : Find it under Mario's bed at Mario's Pad.
#2 : This one is behind the wooden flower at Rose Town.
#3 : Find it between the O and A in the word GOAL at Yo'ster Isle.
Rest again at the bed and the Three Musty Fears give you a Ghost Medal.
Credit goes to: http://www.rpgclassics.com/shrines/snes/smrpg/secrets.shtml
Oh, and the flags are invisible.